Jan. 8 (Bloomberg) -- President-elect Barack Obama said he would propose a “substantial overhaul” of the U.S. financial regulatory system before leaders of the biggest developed and emerging nations meet in April.

The regulatory system needs to be updated to “meet the needs of the 21st century” because currently there are “systemic risks that are possible whether it’s in the form of derivatives or insurance or traditional bank deposits,” Obama said in an interview aired on cable channel CNBC last night.

Leaders from the Group of 20 industrialized and developing nations are scheduled to meet in London to continue working on a coordinated response to the global economic slowdown.

“By the time that G-20 meeting takes place, we, I believe, will have presented our approach to financial regulation,” Obama told CNBC.

A provision in the $700 billion financial-rescue law Congress approved in October requires the Treasury secretary to submit a report to Congress by April 30 with recommendations for improving the U.S. financial regulatory structure.

The economic slump has become the central focus for Obama as he prepares to take office Jan. 20. He is scheduled to deliver what his transition office called a major speech on the economy today at 11 a.m. New York time at George Mason University, in the Washington suburb of Fairfax, Virginia.

The president-elect is pressing Congress to act quickly on an economic stimulus plan of about $775 billion over two years to pull the U.S. out of a recession. He has warned that the recovery plan would add to the deficit, which the Congressional Budget Office yesterday forecast would hit $1.18 trillion this year.

Final Size

Obama suggested the size of the stimulus package may grow as it works through Congress. “What we are concerned about is making sure the money is spent wisely,” he said.

The plan includes infrastructure spending aimed at creating or saving 3 million jobs as well as tax cuts that may be worth about $300 billion.

Obama said he hasn’t decided whether he will seek an accelerated repeal of tax cuts for upper-income individuals that were passed under President George W. Bush. “That’s going to be part of our consultations with Congress,” he said.

He also declined to comment on a report in the Wall Street Journal that he plans to keep Federal Deposit Insurance Corp. Chairman Sheila Bair at her post.

Still, he said Bair and the FDIC “had the sense of urgency” that the crisis in the housing market needed.

“We haven’t made any official statements on this yet, but I think generally they’ve been on the case with the resources that they have to try to shore up the system,” Obama said.

Foreclosures

Bair, who was appointed by Bush to a term that ends in 2011, has advocated foreclosure prevention and has repeatedly prodded mortgage servicers to modify loans for struggling homeowners.

Obama said he is watching the reaction of financial markets as he lays out his economic plans.

“I’ve got to pay some attention to market psychology” and communicate to “key market participants,” Obama said. The president can’t “live in the bubble,” he said.

Still, Obama said his goal is to stay focused on the nation’s broader needs and not immediate market fluctuations.

“As president, I’ve got to be looking out at the horizon, I can’t be looking at today’s headlines,” Obama said.

U.S. stocks slid yesterday, wiping out most of the market’s 2009 gain, after ADP Employer Services said employers cut 693,000 jobs in December. The Standard & Poor’s 500 Index fell 3 percent to 906.65, cutting its 2009 gain to less than 0.4 percent. The index’s 38 percent decline in 2008 was its worst yearly drop since 1937.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

Last Updated: January 8, 2009 00:01 EST