The recent collapse of investment bank Bear Stearns is driving the push for new regulation. The Fed was forced to step in on March 14, and over a single weekend, broker the fire sale of Bear Stearns to rival JP Morgan Chase. The Fed also opened its discount window, where it acts as the lender of last resort, to investment banks, which it doesn't regulate. This window traditionally has been open only to commercial banks, which are under the Fed's supervision.

The Fed lacked explicit authority to take over an investment bank, as former Fed Chairman Paul Volcker has suggested, but Bernanke maintains that the move was legal because the Fed has broad responsibility to protect the U.S. financial system from collapse.

Since then, Treasury Secretary Paulson, a former chairman and chief executive officer of investment bank Goldman Sachs & Co., has offered a blueprint for revamping the regulation of financial markets. He recently said that some of his proposals shouldn't wait.

On Thursday, the House Financial Services Committee will hold the first of several hearings on the state of financial-market regulation and the safety and soundness of the banking system. Bernanke and Paulson are scheduled as the lead-off witnesses.

Before the hearings, Bernanke spelled out what he wants from Congress: a new, more robust framework for regulating investment banks, which aren't subject to supervision and capital requirements, unlike commercial banks.

The Securities and Exchange Commission has oversight of the holding companies that own investment banks, but the oversight is based on voluntary agreements with the banks.

"Strong holding-company oversight is essential, and thus, in my view, the Congress should consider requiring consolidated supervision of those firms, providing the regulator the authority to set standards for capital, liquidity holdings and risk management," Bernanke said.

To prevent a repeat of the current mortgage mess, Bernanke said the Fed also will adopt rules cracking down on a range of shady lending practices that have burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

Consumer groups have complained that the proposed rules aren't strong enough, while mortgage lenders worry that they are too tough and could crimp customers' choices.

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Contributing: Associated Press