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Obama sees executive pay rules as next financial reform: report

WASHINGTON (Reuters) - President Barack Obama said in an interview released on Thursday that the next important step for making the financial sector safer is to make sure executive pay is less closely tied to risky bets.

In an interview to be published on Friday in Rolling Stone magazine, Obama said that despite passage of Dodd-Frank financial reform legislation, there is more to be done to make financial markets safe after the damage caused by the crisis of 2007-2009.

"The single biggest thing that I would like to see is changing incentives on Wall Street and how people get compensated," Obama said. It's questionable, even after enactment of Dodd-Frank reforms, that those incentives have completely been changed, he added.

The Rolling Stone interview stirred controversy because of the president's use, at one point, of a barnyard epithet that some saw as an attack on Republican Mitt Romney.

The White House did not dispute the remarks but a re-election campaign official stressed that the comments were "part of a casual conversation at the end of the interview." The wide-ranging interview covers Obama's first term, what he views as his biggest accomplishments and his fierce fight with Romney for the White House.

The president and Romney are running neck and neck ahead of the November 6 election and have stepped up their campaigning. Obama points to financial reform as a signature accomplishment of his four years in office and says the overhaul will prevent a repeat of the devastating crisis that caused the loss of more than 8 million jobs and erased an estimated $19 trillion in household wealth.

However Dodd-Frank reforms are deeply unpopular with the financial industry and many businesses, who say an avalanche of new requirements stands in the way of hiring new workers and making fresh investments, thus holding back the broader economic recovery. Romney has promised to repeal provisions of the 2010 Dodd-Frank law if elected.

Obama said the stability of markets is still at risk because people making risky bets are handsomely rewarded if the bets pay off, but face limited consequences if those bets go sour.

"It tilts the whole system in favor of very risky behavior," he said. "By the time the chickens come home to roost, they're still way ahead of the game."

Such changes are not entirely up to passing laws in Washington and may require shareholders or company directors to act, Obama said. Changes to the executive compensation system cannot entirely be legislated, he said.

Another challenge to ensuring greater financial stability in the future will be to ensure that the rules that prohibit banks that receive government backstop from making risky trades -- the so called Volcker Rule - is adequately enforced, Obama said.

Progress in implementing the rule was slowed when regulators received thousands of comment letters.

Two influential U.S. senators on Thursday urged regulators to resolve differences and finish writing the rules before the end of the year.

(Reporting by Mark Felsenthal and Emily Stephenson; Editing by Lisa Shumaker)

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