WASHINGTON — Top Obama administration officials are close to recommending that Congress create a single regulator to oversee the entire banking sector, people familiar with the matter said, a departure from the hodgepodge of federal agencies that failed to contain the financial crisis as it ballooned out of control last year.
The new agency is expected to be a major plank in a proposal that Treasury Secretary Timothy Geithner and White House officials send Capitol Hill in a few weeks with the goal of overhauling supervision of financial markets.
Other components under consideration are an agency to police financial products offered to consumers and a beefed-up investor protection regulator.
People involved in the process said much is still in flux and could change before a formal recommendation is made to Congress in mid-June.
The new bank regulatory agency could prove controversial because it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip supervisory powers from the Federal Reserve and the Federal Deposit Insurance Corp.
The Fed and the FDIC would gain other powers, though, as White House officials want the Fed to be able to oversee systemic risks in the economy. They also want the FDIC to have new powers to take large financial companies that aren't banks into receivership.
"The President is committed to signing a regulatory reform package by the end of the year and officials at the White House and the Treasury department are continuing work with Congress on the final phases of a proposal, but there is no final proposal in place and any announcement will not be for a couple of weeks," White House spokesman Jennifer Psaki said.
Once the Treasury sends its plan to Capitol Hill, Congress would have to work through the details. Administration officials are hopeful that a final package could come together by the end of the year.
White House and Treasury officials have met with numerous groups to discuss their plans to rework supervision of financial markets, and they have occasionally offered clues as to what their plans may look like. Mr. Geithner has said he thinks there needs to be consolidation and simplification in the oversight of banks, but he has declined to be more specific.
Still, administration officials in recent weeks have suggested that they might decide not to pursue a major consolidation of the bank regulators and push for a more streamlined approach to supervision instead.
Government officials have been even less clear about how to handle a potential merger between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Some Obama administration officials believe the agencies should be consolidated into one, but it would likely elicit a huge jurisdictional fight on Capitol Hill.
Banks are overseen by a patchwork of state and federal regulators, and the Obama administration isn't expected to propose getting rid of the so-called dual banking system.
Instead, the new regulator would serve as a secondary set of eyes for the more than 5,000 state regulated banks and the primary regulator for the nationally chartered banks and thrifts. The objective is to streamline supervision of banks and make it harder for banks to game the system by shopping for the lightest form of oversight.
Each of the banking agencies has dug in for a fight in recent weeks, and it is unclear how willing Congress will be to go along with a dramatic administration request. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) has signaled that he is reluctant to give the Fed sweeping new powers to oversee systemic risks to the economy.
Regulators still haven't decided the best way to oversee insurance companies at the federal level. Many other details haven't been worked out and might be left up to Congress. For example, the Treasury Department hasn't signaled which companies should be overseen directly by a new "systemic risk" regulator.