The Treasury Department on Monday is set to recommend adding broad powers to the Federal Reserve Board, merging the national bank and federal thrift charters, and eliminating the federal credit union charter.

In its long-awaited restructuring blueprint, Treasury calls for short, medium and long term steps that it believes should be taken to modernize the financial regulation.

Its long-term recommendations include reducing the current patchwork of federal regulators down to three: the Fed, which would act as a systemic risk regulator, including oversight of all financial holding companies; a prudential safety and soundness regulator to supervise a single federal insured institutions charter; and a business conduct regulator, which would monitor conduct, including consumer protection, across all financial firms.

Treasury announced its plans to recommend a new regulatory structure last year and although it said it was not spurred by the current credit crunch, the crisis has highlighted holes in the regulatory structure.

"Recent market developments have pressured this regulatory structure, revealing regulatory gaps and redundancies," said a summary of the Treasury report first obtained by The New York Times. "These regulatory inefficiencies may serve to detract from U.S. capital markets competitiveness

Though it called for the merger of all federal financial institution charters in the long term, Treasury recommended more immediate action with regard to thrifts and their regulator, the Office of Thrift Supervision. Treasury said the thrift charter "is no longer necessary to ensure sufficient residential mortgage loans are made available to U.S. consumers" and should be merged with the national bank charter within two years. The OTS' duties, Treasury said, should be assumed by the Office of the Comptroller of the Currency.

In a press release issued after leaks of the Treasury plan were made public, OTS Director John Reich defended his agency's existence, and said it should be expanded, not curtailed.

"We also believe there is a strong case to be made that, because of the long-time OTS expertise in the home mortgage market ... OTS authority should be expanded to provide nationwide uniformity in the regulation of mortgage bankers and mortgage brokers," he said.

In an e-mail sent to staffers on Friday, Mr. Reich went further, noting that previous administration efforts to revamp regulatory structure have failed.

"When the Treasury Department issues its recommendations, expect to see news stories and renewed questions about what the future will hold," Mr. Reich said in the e-mail. "Take note of the fanfare, then look back to the Truman Commission in 1947 and others like it in the years since — and resume the important work that you continue to do so well, each and every day. Remember, the 20th anniversary of the OTS is next year. We can all expect — despite predictions over the years to the contrary — to be celebrating it."

Treasury also said that federal supervision of state-chartered banks should be overseen by one regulator — either the Fed or the Federal Deposit Insurance Corp. — but said it would commission a study on which agency would be more appropriate. Currently, the FDIC conducts federal supervision of non-member state banks, while the Fed oversees member state banks.

Additionally, Treasury recommended the merger of the Securities and Exchange Commission and the Commodities Futures Trading Commission within a short time frame.

But it was its long term recommendations that were liable to generate the most controversy. Treasury called for the creation of a single federal financial institutions charter, effectively merging the federal bank, thrift and credit union charters. Treasury said the new charter should enjoy preemption powers, and be based on the national bank charter.

"The goal of establishing a [federal insured depository institution] charter is to create a level playing field among all types of depository institutions where competition can take place on an economic basis rather than on the basis of regulatory differences," a summary of the Treasury blueprint said.

To oversee the charter, Treasury called for the creation of the Prudential Financial Regulatory Agency for financial institutions. PFRA would assume the roles of current federal prudential regulators, including the OCC, OTS, and National Credit Union Administration.

Though a recommendation to merge the bank and thrift charters was expected, Treasury is handling a potential hot potato with regard to its recommendation to also merge away the federal credit union charter. The politically powerful credit union lobby is likely to fight tooth and nail against any attempt to eliminate the federal credit union charter.