The Obama administration wants to overhaul the U.S. financial rule book by giving the Federal Reserve increased powers but, bowing to critics in Congress, is backing away from proposals to consolidate various regulatory agencies.
The administration's overhaul plan would make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system.
It also would create a council of regulators with broad coordination responsibility across the financial system, administration officials said.
And the administration plans a stronger framework for investor protection, including increased oversight of consumer products ranging from credit cards to annuities, officials said.
Speaking in New York on Monday, Treasury Secretary Timothy Geithner said the regulatory overhaul will eliminate "gaps" in the financial system that encouraged risky behavior leading up to the meltdown.
"We had a financial system that was fundamentally too unstable and fragile, and it did a bad job of basic protection of consumers and investors," Geithner said during an economic conference hosted by Time Warner Inc. "Those are things we have to change."
The White House said that Obama would unveil his regulatory overhaul plan on Wednesday.
The administration's regulatory proposals were outlined in an opinion piece by Geithner and Lawrence Summers, director of the president's National Economic Council, published Monday in The Washington Post.
The piece indicated that the administration has backed away from a more extensive overhaul that would have consolidated all banking regulation into one agency.
Supporters of this approach, including Sen. Chuck Schumer, a New York Democrat, have argued that the current system is inefficient.
"Retaining multiple regulatory entities preserves the regulatory arbitrage that allows institutions to pick the oversight scheme that benefits them the most, often at the expense of consumers and the health of the system overall," Schumer wrote in a letter to Geithner on Friday.
A proposal to merge the Securities and Exchange Commission and the Commodity Futures Trading Commission also has been abandoned.
Geithner and Summers wrote that the administration's overhaul will advocate increasing capital and liquidity requirements for all financial institutions and will impose more stringent requirements on the largest and most interconnected firms.
Scott Talbott, a senior vice president at the Financial Services Roundtable, said his association supports the administration's basic approach, but was disappointed that the opinion piece did not mention the need to revamp regulations covering insurance.
Insurance companies are now governed by state insurance commissions, and large insurance companies have argued they need the option of a federal overseer.
At his appearance in New York, Geithner declined to give specifics on the regulatory reform plan or say whether it will include eliminating certain agencies.
The administration was still expected to call for the functions of the Office of Thrift Supervision to be merged into the Office of the Comptroller of the Currency. But it would leave the Fed, the OCC and the Federal Deposit Insurance Corp. as major banking regulators.
The administration's plan will impose "robust reporting requirements" on issuers of asset-backed securities and require institutions that sell them to retain a financial interest in their performance, Summers and Geithner wrote.
The sale of securities backed by subprime mortgages was among the major causes of the financial crisis that struck with force last fall.
Summers and Geithner said the administration also will work to raise international standards for financial regulation.