WASHINGTON (Reuters) - President Barack Obama laid out his vision for reshaping US financial regulation yesterday, aiming to tighten oversight of large firms whose excessive risk-taking triggered a global economic slump.

The proposals, under development over the past six months are headed next for debate in the US Congress and include closing one bank regulator and creating government watchdogs for big-picture economic risk and financial product safety.

The administration takes on tough jobs, such as forcing large firms to boost their capital cushions and regulating over-the-counter derivatives and securitised instruments.

But it only partially tackles a task once seen as vital — a top-to-bottom revamp of financial regulatory agencies.

No merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is being proposed, for instance, due largely to political obstacles.

"With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse," Obama said in a White House speech.

"We seek to create a framework in which markets can function freely and fairly, without the fragility which in normal business cycles bring the risk of financial collapse, a system that works for businesses and consumers," he said.

Obama called for putting the Federal Reserve in charge of monitoring "systemic risk" to the economy posed by the largest financial firms, with the aim of preventing a repeat of the banking and capital markets crisis of the past year.

He also appealed for the creation of an agency that would seek to protect consumers of financial products, ranging from home loans to credit cards.

"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression," he said.

Months of congressional debate loom. Senate and House committees will hold more than a dozen hearings on regulatory reform between now and mid-July, and conservative House Republicans have already offered a rival plan.

"There are clearly some ideas that we agree with," House Republican leader John Boehner told reporters. "But I do think that this idea of having this consumer board is very cumbersome, will limit the number of new financial products that come to the market and will give the government an awfully strong presence in an industry that's been very creative."

Obama defended the plan as a balanced approach that restrains excessive risk, but doesn't clamp down so hard that firms would be prevented from helping drive economic growth.

The president and his top economic advisers see the current financial upheaval as the latest in a series of crises going back decades, so their regulatory reform intends to correct problems beyond just those blamed for the latest episode.

As detailed in an 88-page document, the Obama plan calls for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision.

A council of regulators to be chaired by the US Treasury secretary would work with the Federal Reserve, which would gain new powers, as it monitors risks that could threaten the entire financial system.

The goal is to make sure a failure of one company — like bailed-out mega-insurer American International Group, for instance — does not destabilise the broader economy.

The administration has been discussing how best to tighten bank and market regulation for six months, with the European Union moving on a similar track and more quickly in some areas.

Under the Obama plan, the government would be empowered to seize and unwind large, troubled companies that are not banks, modeling the process on the Federal Deposit Insurance Corp's existing power to unwind failing banks.

The administration also wants to rein in markets for securitized debt and over-the-counter derivatives, and beef up regulation of money market mutual funds, credit rating agencies, and hedge funds.