The proposal, which will be outlined tomorrow in a speech by Treasury Secretary Henry Paulson, is the result of a year of study by him and has the support of President George W. Bush, according to Treasury officials.

An outline of the proposal, which Treasury officials call a 'regulatory blueprint' for the coming years, includes short-term, intermediate and long-term changes in the country's regulatory structure.

According to a 22-page summary of the proposal obtained by Associated Press, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

There would be a 'market stability' regulator based on the Federal Reserve; a 'business conduct regulator' based on the current Securities and Exchange Commission and Commodity Futures Trading Commission; and a 'prudential oversight' regulator encompassing the current Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Mr Paulson's review began before the sub-prime mortgage crisis and subsequent financial market turmoil, but it was given new import by the near-collapse of investment house Bear Stearns and the Federal Reserve's decision two weeks ago to extend its lending facilities temporarily beyond banks to investment companies.

'I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years,' Mr Paulson says in the speech to be delivered tomorrow.

'I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.'

But the plan does seek to address problems highlighted by the current crisis in which the Fed in an unprecedented move has begun making direct loans to securities firms in an effort to shore up a system badly shaken by billions of dollars of losses stemming from mortgage loans gone sour.

The proposal is certain to set off heated debates within different sectors of the financial services industry and in the Congress, where some Democrats are likely to complain that it does not go far enough to crack down on abuses.

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

'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,' said Mr Schumer, chairman of the Joint Economic Committee.

Initial reaction from the securities industry too was positive.

AP, Los Angeles Times