The Obama Administration said yesterday that it would push ahead with its regulatory overhaul of the American financial system, including giving the Federal Reserve increased powers to guard against future meltdowns.

In the most detailed summary to date of the proposed reforms, which will be presented officially tomorrow, Timothy Geithner, the Treasury Secretary, and Lawrence Summers, White House economic adviser, told The Washington Post that increasing capital and liquidity requirements for all financial institutions would be recommended. Mr Geithner said that the rules revamp would eliminate gaps in the financial system that encouraged risky behaviour leading up to last year’s financial crisis. “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,” Mr Geithner said. “Those are things we have to change.”

The two officials outlined the plan, before the release by President Obama, of a detailed package of proposals that has been under discussion for six months and are set to be the most sweeping changes to the financial regulatory system since the 1930s.

The Treasury Secretary and Mr Summers said that firms that are too big to fail would face additional scrutiny by the Fed, effectively placing the central bank in charge of America’s biggest banks. Previously it was a role that the Fed shared with the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. Also a council of regulators would be established with broad co-ordinated responsibility across the financial system.

The proposal is to create a new way to unwind troubled large firms and avoid the haphazard approach to emergencies, such as last year’s bailout of American International Group, the insurer. It has been said that America’s patchwork of financial regulators enabled the risky behaviour of the banks and other companies to go unnoticed. The plan will also urge reducing “investors’ and regulators’ reliance on credit-rating agencies”, the officials said.

They said that the overhaul would include new reporting requirements for issuers of asset-backed securities. A spokesman said that the Administration would recommend that lenders retain 5 per cent of the risk they securitise. A Bill to do this was approved in May by the House of Representatives but is languishing in the Senate.

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