WASHINGTON — The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release tomorrow would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

The Associated Press obtained a 22-page executive summary of the plan. It seeks to make sense of the mishmash of overlapping oversight in which an alphabet-soup roster of agencies regulates banks, thrifts and credit unions.

Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis rocking Wall Street and making credit hard to get on Main Street has highlighted that discrepancy in regulation.

Many financial institutions have declared billions of dollars in losses stemming from soaring mortgage defaults caused by prolonged housing troubles.

In an unprecedented move designed to get credit flowing, the Fed is allowing investment banks to borrow directly from the Fed, something only commercial banks had the power to do before.

That decision came as part of a rescue effort for Bear Stearns Cos., the nation's fifth-largest investment bank. It nearly failed earlier this month before the Fed rushed in with a $30 billion line of credit to facilitate the sale of Bear Stearns to JPMorgan Chase & Co.

The Fed's moves have put public money potentially at risk and increased calls for greater regulation of investment banks and other institutions. The Paulson plan is expected to spur intense debate in Congress, which would have to approve the changes.

Some top Democrats, including Rep. Barney Frank, the chairman of the House Financial Services Committee, are pushing competing ideas that would streamline oversight but also impose new controls beyond those in Paulson's plan.

Sen. Charles Schumer, a leading voice in the debate, said he did not think Paulson had gone far enough in dealing with some of the new complex types of investments heavily featured in the current financial crisis.

"Very complex financial instruments have evolved in recent years," said Schumer, D-N.Y. "The Treasury Department should address these issues as well."

David Nason, Treasury's assistant secretary for domestic finance, said the administration's primary goal is to get through the current credit crisis with officials understanding that the debate over an overhaul plan this far-reaching could last for years.

"These are very complex issues that require a serious amount of debate," he said yesterday. "It is going to take time to play out."

Business groups yesterday generally voiced support for Paulson's approach and said there would be significant debate over the details.

"The current crisis just shows in a very stark way that ... you need a regulatory structure that is simple, nimble and modern and ours does not meet that test," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a big lobbying group for Wall Street, said there was "universal agreement that it is time to modernize and revitalize the current system."

A significant loser in the blueprint appears to be the SEC, which would be combined with the Commodity Futures Trading Commission. It would be asked to give financial markets greater freedom to police themselves and streamline the process for approving financial products such as complex futures contracts. Right now, many financial firms and hedge funds get such products approved by other market regulators or trade them on foreign markets because of the bureaucracy of the SEC, Treasury officials have said.

SEC Chairman Christopher Cox said the regulatory system needs to be streamlined.

"Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility," Cox said yesterday. "The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets."

The SEC's inspections team could be stripped of much of its power if it ends up ceding its examinations to the Fed. The unit, known as the Office of Compliance Inspections and Examinations, has been targeted in recent months by industry and has been the focus of criticism from Republican commissioners.

While the SEC would lose some authority, the Fed would gain almost unprecedented power.

Yesterday, the Fed indicated openness to the Treasury Department's plan, without endorsing its specifics.

The Washington Post contributed to this report.