WASHINGTON - The Obama administration wants to overhaul the country's financial oversight process by giving the Federal Reserve increased powers but, bowing to critics in Congress, is backing away from proposals to consolidate various regulatory agencies.

Speaking in New York yesterday, Treasury Secretary Timothy Geithner said the regulatory overhaul would eliminate "gaps" in the financial system that encouraged risky behavior leading up to last year's financial meltdown.

"We had a financial system that was fundamentally too unstable and fragile, and it did a bad job of basic protection of consumers and investors," Geithner said during an economic conference hosted by Time Warner Inc. "Those are things we have to change."

The overhaul plan - to be announced by President Obama tomorrow - would make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire financial system.

It also would create a council of regulators with broad coordination responsibility across the financial system, administration officials said.

The administration also will offer a stronger framework for investor protection, including increased oversight of consumer products such as credit cards and annuities, officials said.

The administration's regulatory proposals were included as part of an opinion piece by Geithner and Lawrence Summers, director of the president's National Economic Council, published yesterday in The Washington Post.

The administration has backed away from a more extensive overhaul that would have consolidated all banking regulation into one agency. Supporters of that approach, including Sen. Chuck Schumer (D., N.Y.), have argued that the current system is inefficient and allows institutions to pick the oversight scheme that benefits them most. That often occurs at the expense of consumers and the overall financial system, Schumer says.

A proposal to merge the Securities and Exchange Commission and the Commodity Futures Trading Commission also has been abandoned.

In the newspaper article, Geithner and Summers said the administration's overhaul will propose increasing capital and liquidity requirements for all financial institutions and will impose more stringent requirements on the largest and most interconnected firms.

Geithner, in his remarks in New York, said the administration would seek to ensure that tougher rules don't bog down the banking system with red tape. "You want to have a system where innovation is rich and healthy, so we have to find a balance. We did not get the balance right," he said.