by Jitendra Joshi

WASHINGTON - After taking on US banks' toxic assets, President Barack Obama is readying a regulatory revamp to attack the underlying problem of titanic companies that become too big to fail.

The Obama administration is expected this week to lay out details, including a new super-regulator, ahead of a G20 summit in London next week where reform of outdated banking regulation will be a major agenda topic.

Treasury Secretary Timothy Geithner will discuss the planned changes at a hearing Thursday of the House of Representatives committee on financial services, and beforehand will brief the committee on the AIG fallout Tuesday.

American International Group, the giant insurer saved from collapse by a government bailout last year, has become the totemic example of a company whose sheer size has the potential to ignite a chain reaction of industry failures.

Obama said Monday his team was "very confident" that by working with the Federal Reserve and Federal Deposit Insurance Corp. (FDIC), they would unlock credit markets and design regulations to prevent similar systemic crises.

White House spokesman Robert Gibbs said Geithner would Thursday "outline principles for regulatory reform that we hope will pass by the end of the year".

Geithner is turning his attention to plugging regulatory gaps after Monday unveiling a long-awaited plan to buy up toxic assets clogging the financial system with a mix of government funds and private capital.

The impending reforms to banking supervision are aimed "to make the system more stable in the future, to end this cycle of boom/bust, major financial crises every five years or so", the Treasury chief told the CNBC network.

To that end, he said, there will be "better resolution authority" to unwind collapsed firms such as AIG and Lehman Brothers, and curbs on executive compensation after a furor over lavish bonuses paid out by AIG.

While government bailouts have offered a temporary fix, Obama says more permanent changes are needed such as a "systemic risk regulator" to sound the alarm before a collapse becomes imminent.

Officials say the government also needs new powers similar to the authority enjoyed by a bankruptcy judge to restructure a failed company, to cover not just banks but major non-bank financial institutions such as hedge funds.

And exotic investment tools that long operated under the radar, such as the "credit default swaps" blamed for AIG's demise, are expected to be brought onto open exchanges.

'In a crisis that has taught the American people many hard-earned lessons, perhaps the most important is that no institution should ever be too big to fail,' Senate banking committee chairman Christopher Dodd said last week.

'And going forward we should consider how that lesson applies not only to our financial institutions but also to the government entities charged with regulating them,' the Democrat said at a hearing.

In an unusual joint statement Monday, the Treasury and Federal Reserve pledged to work with Congress "to develop a regime that will allow the US government to address effectively at an early stage the potential failure of any systemically critical financial institution".

Legislation should spell out as precisely as possible the role of the central bank and other US government agencies in preventing such failures, they said.

Fed chairman Ben Bernanke has backed the idea of a systemic regulator, but Dodd said the relevant expertise would be better found at the government's FDIC, which insures bank deposits for the general public.

The Fed, he argued, had failed to use its existing authority over US banks to pre-empt the present crisis.

Powers of industry oversight are now split over an array of government agencies, including the Fed, the FDIC, the Securities and Exchange Commission and the Treasury, and US lawmakers say the situation is rife with confusion.

That contrasts with a sharper regulatory focus in Europe, embodied in Britain's Financial Services Authority or the Federal Financial Supervisory Authority in Germany.

Ahead of the April 2 meeting of the G20 rich and developing nations, European leaders say new banking supervision rather than stimulus spending is the most urgent priority.