WASHINGTON  As Congress and the Bush administration struggle to contain the housing and credit crises  and prevent more Wall Street firms from collapsing as Bear Stearns did  a split is forming over how to strengthen oversight of financial institutions after decades of deregulation.

The administration and Democratic lawmakers in Congress agree that the meltdown in credit markets exposed weaknesses in the nation’s tangled web of federal and state regulators, which failed to anticipate the effect of so many new players in the industry.

In Congress, Democrats are drafting bills that would create a powerful new regulator  or simply confer new powers on the Federal Reserve  to oversee practices across the entire array of commercial banks, Wall Street firms, hedge funds and nonbank financial companies.

The Treasury Department is rushing to complete its own blueprint for overhauling what is now an alphabet soup of federal and state regulators that often compete against each other and protect their particular slices of the industry as if they were constituents.