WASHINGTON – Congressional Republicans are close to offering financial regulation reforms that would rein in the Federal Reserve and expand the bankruptcy code, according to a draft staff document obtained by Reuters.

The five-page document, still subject to change, could give political cover to lawmakers from both parties who are skeptical about some of the Obama administration's own reform proposals.

Democrats, in control of the White House and Congress, are setting the reform agenda, with a comprehensive package of reforms expected next week from the Treasury Department in response to the worst financial crisis in generations, according to sources familiar with discussions.

But the Republican package, likely to be unveiled on Thursday, according to congressional aides, may steal some of the Democrats' spotlight and undercut congressional support for the White House program.

For instance, the administration wants to establish a systemic risk regulator that would monitor and intervene to address potential financial dangers in the economy.

The Republican draft package opposes giving systemic risk authority to the Federal Reserve, an idea that sources have said the administration favors, but many lawmakers distrust.

Instead, the Republicans call for creating a board of regulators and outside experts, chaired by the Treasury secretary, to study systemic risk and report quarterly. The board would have no enforcement or supervisory powers.

Another high priority of the Obama administration is empowering an agency, probably the Federal Deposit Insurance Corp (FDIC), to seize and unwind troubled non-bank financial institutions. The idea is to avoid on-the-fly bailouts in the future like that of American International Group.

But Republicans, in a sharp repudiation of the bailout policies begun under former President George W. Bush, say in the draft document that they oppose such resolution authority and, instead, favor adding a new chapter to bankruptcy law.

The new chapter would specifically address dealing with troubled, large non-bank financial institutions.

On bank regulation, the Republicans call for merging the Office of Thrift Supervision, which regulates mortgage lenders, and the Office of the Comptroller of the Currency, which regulates many of the nation's largest banks.

The resulting single bank regulator would also take on bank supervision duties now held by the Fed and the FDIC, both of which would be refocused on their core jobs -- monetary policy in the Fed's case, and deposit insurance in the FDIC's.

On Fannie Mae and Freddie Mac, Republicans call for phasing out government support for the housing finance giants and converting them to private entities if they are still viable after the housing market stabilizes. If they are not, then the draft calls for putting Fannie and Freddie in receivership.

(Reporting by Karey Wutkowski, Kevin Drawbaugh and John Poirier; editing by Carol Bishopric)

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