US President Barack Obama is expected to come out with a financial-market reorganisation package that would deal with banking, mortgages, underwriting, and other financial instruments traded in the market.

The plan, which the administration officials are referring to as a "white paper," is likely to be unveiled as early as tomorrow.
 
It is expected to give sweeping power to the Federal Reserve, give the government the power to interfere in systemically important companies, and create a new regulator for consumer-oriented financial products.

Once Obama unveils the proposal, Congress would have to pass the legislation to enact the changes. Treasury secretary Timothy Geithner is scheduled to appear before both Senate and House panels on Thursday.

The plan is aimed at reshaping the US financial market in the background of rising number of failed banks and severe credit crisis. Experts were asking for a new system in place of just bailouts which involve a lot of taxpayers' money. The near collapse of American International Group (AIG), and about $700 billion in bank rescue operations have drawn severe criticism on the way the financial markets are functioning in the US.

A council of regulators will also be set up to allow greater co-ordination and feedback between the various supervisors, and to ensure that the largest, most inter-connected firms are being fully regulated in all areas of their business.

There will also be requirements for issuers of asset-backed securities to retain 5 per cent of the risk they are securitising on to others, as well as creating a new body to regulate on behalf of consumers.

Administration officials have argued that a rewrite of US financial rules is needed to prevent future crises like the one that has been hammering world economies since early 2008.

The broad shape of the reforms was confirmed in an op-ed piece ' A New Financial Foundation' jointly by Geithner and White House economic adviser Summers, in Monday's Washington Post.

''This current financial crisis had many causes. It had its roots in the global imbalance in saving and consumption, in the widespread use of poorly understood financial instruments, in shortsightedness and excessive leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation,'' they noted.

The Geithner-Summers article underlines the administration's determination to give the Federal Reserve a central role, and to create a new way for the government to handle troubled, large, non-bank firms whose failure could pose a risk to the economy.

Geithner and Summers said a key goal will be "raising capital and liquidity requirements for all institutions," with tighter standards for the biggest, most interconnected firms.

In addition, they said, the big firms whose failure could threaten the entire system "will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system."

The administration's plan will impose robust reporting requirements on the issuers of asset-backed securities; reduce investors' and regulators' reliance on credit-rating agencies; and, perhaps most significant, require the originator, sponsor or broker of a securitisation to retain a financial interest in its performance, the report noted.

The plan also calls for harmonising the regulation of futures and securities, and for more robust safeguards of payment and settlement systems and strong oversight of "over the counter" derivatives. All derivatives contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse.

In a separate speech, Geithner explained: "We're going to try to eliminate gaps in the basic structure. We want to have a more boring system, a little less exciting, a little less drama."