WASHINGTON — For weeks, President Obama has been pushing hard on his plan to revive the nation's economy, driving the $787-billion stimulus package through Congress, following up with a plan for homeowners facing foreclosure and readying a strategy for reviving the moribund credit system.
But on one crucial piece of his overall strategy, Obama and his economic team have kept a relatively low profile: an overhaul of the federal regulatory system that sets and enforces the rules under which banks, hedge funds, stockbrokers and the rest of the nation's financial institutions must operate.
Of all the elements in Obama's strategy, regulatory reform could be the toughest -- and take the longest time to achieve.
The White House and Capitol Hill Democrats are separately developing the new framework for the sprawling and increasingly complex financial services industry, a step many experts view as essential for preventing future disasters.
Many factors contributed to the meltdown that struck Wall Street last year, to such calamities as the demise of investment bank Lehman Bros. Holdings and to the emergency bailouts that kept Citigroup and American International Group from collapsing as well.
But there is widespread agreement that an outdated regulatory system and lackluster oversight by watchdog agencies also played roles in bringing on the crisis. And in political terms, persuading Congress to pony up more money to support the financial system -- which many experts believe will be necessary -- will be nearly impossible without new safeguards.
Although many agree on the shortcomings of the current system, devising and winning agreement on a new one present a thicket of challenges, from overcoming industry opposition and defusing turf wars among federal agencies to striking a balance between protecting consumers and encouraging growth in finance and the economy as a whole.
"The challenge is going to be separating politics from policy," said Scott Talbott, the lead lobbyist for the financial services industry in Washington.
One hopeful sign is that many in the industry agree that the rules need revamping. They call the oversight regime outdated, with too many agencies whose missions are unclear and overlapping.
One example: There is widespread industry support for having Congress create a "systemic risk regulator" -- a super-agency empowered to monitor financial institution transactions. Such an agency could identify trouble before a company enters a death spiral of the type that felled Lehman, Bear Stearns & Co. and other once-proud firms.
