MEXICO CITY — Mexico's government proposed a sweeping overhaul of the banking sector Wednesday to make credit cheaper and more available, a move desperately needed in a country where bank loans represent less than 20 percent of GDP — one-tenth of the level seen in the United States.

The plan would encourage banks to compete and lend more, create incentives for mid-size companies to list shares on the stock market and modify bankruptcy laws to make it easier for lenders to seize debtors' assets.

Critics warned it could launch a wave of foreclosures like those seen in Spain and the United States, while supporters said it is needed to spur banks to lend to Mexico's credit-starved businesses.

The plan has been submitted to Congress, where the country's three major parties are supporting it.

The proposal is intended to pull Mexico out of the long shadow of its 1995 financial crisis, which threw the country's banks into near-bankruptcy, forcing authorities to rescue them and later sell most of the biggest banks to big foreign financial groups.

Lawmakers presenting the plan criticized the foreign banks, like BBVA, Citigroup and HSBC, saying they have made few loans to businesses, concentrating their loans instead on high-interest credit cards and money market investments.

"We don't have a real banking system," said Jesus Zambrano, whose leftist Democratic Revolution Party supports the reforms. "We have a system of bank usury, that doesn't take risks, that doesn't bet on development."