WASHINGTON - Setting up a certain fight with big business, President Obama is proposing a new regulatory agency to police lenders and protect consumers in credit, savings and other banking transactions .

The consumer agency and a newly empowered Federal Reserve will be two of the central elements of a broad overhaul of the financial-regulatory system that the president was to announce today, officials said.

Already the nation's central bank, the Federal Reserve would supervise large financial institutions that are considered so big that their failure could undermine America's economy, according to the administration proposal.

But even as the Fed gains new powers, Obama also would transfer some banking authority that now rests with the Federal Reserve and the Treasury Department to the new consumer agency - the Consumer Financial Protection Agency.

"There is going to be streamlining, consolidation and additional overlap so that you don't find people falling through the gaps, whether it's the consumer-protection side, the investor-protection side, the systemic risk that we need to make sure is avoided," Obama said yesterday.

The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration's proposal. Many bankers oppose a new consumer-protection regulator and many lawmakers in Congress worry the Fed could turn into a too-powerful and independent financial overseer. Friction over those points could slow any major overhaul of banking and market regulations.

In addition to having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system.

The arrangement is designed to prevent any more crashes like those that felled AIG and Lehman Brothers.

In conjunction with the Fed's authority over large financial institutions and the new consumer agency, Obama will also propose:

_ Requiring higher capital levels at financial institutions to avoid over-leveraging.

_ Eliminating the Office of Thrift Supervision, which oversees savings institutions, and creating a new national bank regulator for all federally chartered banks.

_ Additional protections for investors by requiring greater disclosure by hedge funds as well as regulations of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight.

_ Requiring brokers and originators of asset-backed securities to retain a 5 percent stake in the securities.

_ A system for the orderly disposition of any troubled large interconnected firms whose failure poses a risk to the entire financial system, such as AIG.

Obama's decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt.

The new regulator would have the power to impose fines and allow states to pass laws that are stricter than the federal standards - an approach favored by consumer advocates. *