WASHINGTON — The Obama administration is set to announce this week that a larger-than-expected number of big financial companies can repay their bailout funds, a sign of the government's belief that the banking system is stabilizing, people familiar with the matter said.

The size of the repayments may double the initial estimate of $25 billion by the Treasury Department, the sources said. That would mean that many, perhaps nearly all, of the nine companies that regulators found to have sufficient reserves in a recent "stress test" would be allowed to return federal aid.

Many banks have been eager to repay their bailout money because it comes with strings attached, such as restrictions on what the companies can pay executives. After four months of deliberations, the precise pay limits are expected to be laid out by Treasury officials as early as this week, added the sources, who spoke on condition of anonymity because the official announcements have not been made.

The announcement on executive compensation is significant because it would not only define the pay limits for bailout recipients, but also signal the direction of the administration's efforts to reform pay practices across Wall Street through its overhaul of financial regulation, which will be outlined later this month. Senior administration officials are considering new rules that would empower regulators to rein in pay practices that are seen as rewarding risky behavior and threatening the stability of banks.

EXEC PAY STILL ISSUE

Executive compensation remains a delicate issue for the Obama administration. Officials are seeking to address widespread anger over lavish Wall Street pay without discouraging companies from participating in the government's financial rescue programs. Some government officials added that they are worried that bailed-out companies, such as American International Group, Fannie Mae and Freddie Mac, will suffer an exodus of top talent because of the uncertainty over compensation issues and the possibility that politicians will impose harsher limits in the future.

The current pay limits required legal clarification after Sen. Christopher Dodd, D-Conn., crafted new provisions and quietly attached them to the economic stimulus legislation just before President Obama signed it into law in February. The senator's new rules, which limit bonuses to one-third of an individual's base salary, trumped those in the $700 billion financial-rescue legislation passed in October.

Administration attorneys have now been left with the task of reconciling Dodd's rules with earlier guidelines and explaining to companies how to apply the requirements.

The pay limits would not apply to companies that return their bailout funds.

MAY SPEED RECOVERY

Senior administration officials view the repayment as a positive development, the sources said. They don't think the economy will be able to recover until the banking system stabilizes.

Richard Bove, an analyst at Rochdale Research, said repaying the government will boost bank earnings by eliminating the cost of regular dividend payments. He wrote in a note to clients this week that the industry is on the verge of a "golden age" because banks have dealt with their problems and, under regulatory prompting, have accumulated more capital than they need.

"This means that when the economy turns, banks are ready to take advantage of the recovery," he said.

Other analysts are more skeptical and say the banks must rid themselves of toxic assets before they see a full recovery of the banking system.

THE 9 THAT PASSED

Last month, the Federal Reserve led an effort to test 19 of the nation's largest banks to determine whether they had sufficient capital to survive an even further deterioration of the economy. Regulators found that nine of the companies had enough reserves: J.P. Morgan Chase, Goldman Sachs, American Express, BB&T, U.S. Bancorp, State Street, Bank of New York Mellon, Capitol One Financial and MetLife, which was the only company that had not previously taken federal aid.

Many of these companies have since raised money beyond what the Fed required. Analysts said that another bank, Morgan Stanley, was found by regulators to need capital but has since raised more than it needed and may also be allowed to repay its money soon.

Even if these companies move forward with the repayments, some issues remain. The Treasury holds warrants in these companies, a kind of security that gives the government the right to buy more stock. If banks want to buy back these warrants, they would have to negotiate with the government over how much they would have to pay.