An administration official said the goal is to set new rules of the road to restore faith in the financial system. In essence, the plan is a rebuke to raw capitalism and a reassertion that regulation is critical to the healthy function of financial markets and the steady flow of money to borrowers.

The government also plans to push companies to pay employees based on their long-term performance, curtailing big paydays for short-term victories. Long-simmering anger about Wall Street pay practices erupted last week when the administration disclosed that AIG had paid $165 million in bonuses to employees of its most troubled division, despite losing so much money that the government stepped in with more than $170 billion in emergency aid.

The administration’s signature proposal is to vest a single federal agency with the power to police risk across the entire financial system. The agency would regulate the largest financial firms, including hedge funds and insurers not currently subject to federal regulation. It also would monitor financial markets for emergent dangers…

Hand in glove with this expanded oversight, the administration also is seeking the authority to seize these large firms if they totter toward failure.

Under current law, the government can seize only banks.