The administration proposal would also consolidate the current scheme of bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks.

The plan recommends that the Securities and Exchange Commission, which regulates stock trading, be merged with the Commodity Futures Trading Commission, which regulates futures trades for oil, grains and various other commodities.

The plan would create a national regulator for the insurance industry, which is now largely governed by the states, and would create a Mortgage Origination Commission to try to address the abuses exposed in the current tidal wave of mortgage defaults.

The role Federal Reserve Chairman Ben Bernanke and his colleagues have been playing to shore up the financial system would be formalized in the administration plan by giving Fed officials greater power to detect where threats might be lurking in the system.

The proposal is certain to generate intense scrutiny in Congress and within the financial services industry, where past efforts to change how regulation is handled have met with fierce resistance.

Many Democrats in Congress are already pushing tougher proposals that would impose much stricter regulation in an effort to crack down on abuses exposed by the current credit crisis.

Senator Charles Schumer, a New York Democrat, said he believed Paulson's plan offered some valid suggestions.

"In broad outlines, we agree with large parts of Secretary Paulson's plan," Schumer, chairman of the Joint Economic Committee, said in a statement. "He is on the money when he calls for a more unified regulatory structure, although we would prefer a single regulator to the three he proposes."

Under Paulson's approach, the long-term goal would be to designate the Fed as market stability regulator and to have a financial regulator who would focus on financial institutions that operate with government guarantees such as providing deposit insurance.

The administration plan, which was first reported by The New York Times on its Web site Friday night, also proposes a business conduct regulator who would be in charge of overseeing consumer protection issues.

The initial reaction from the securities industry was also positive.

"Treasury has delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes," said Tim Ryan, president of the Securities Industry and Financial Markets Association.

"Our present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," Ryan said in a statement.

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