Henry Paulson, the US Treasury Secretary, has said that sweeping reforms that he will propose today for the regulation of America’s financial system will not prevent a repeat of the present credit crisis that has overwhelmed Wall Street.

Mr Paulson is scheduled to speak in Washington to unveil a range of proposals that would involve the biggest overhaul of the supervision of America’s banks and insurers since the Great Depression.

The former Goldman Sachs chairman and chief executive will recommend that a number of regulatory agencies be scrapped altogether and that the policing of financial institutions be streamlined from Washington. Under his plans, the US Federal Reserve Bank and the Securities and Exchange Commission (SEC) will become much more powerful and state regulators effectively will be sidelined.

At present America’s financial system is overseen by several agencies that have emerged piecemeal over the past 150 years. The Office of Thrift Supervision (OTS) monitors savings banks, while the Comptroller of Currency, which was set up in 1863, regulates national banks and the US operations of foreign banks. Commercial banks are regulated by the Federal Reserve, but investment banks also answer to the US Treasury, the SEC, the US Accounting Board and to various state regulators. Last week, the Federal Reserve allowed investment banks to borrow money cheaply at its lending window, alongside its member commercial banks. Such a move – made to ensure that all banks had access to credit - was unprecedented.

It is understood that Mr Paulson will propose scrapping the OTS, merging the SEC with the commodities regulator – the Commodity Futures Trading Commission – and making the Fed responsible for all banks. He is also understood to be planning two new agencies, one to scrutinise the way in which mortgage lenders sell home loans and the other to regulate insurers.

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