The Bush administration's ambitious plan to overhaul the nation's banking system received mixed reviews in the industry and on Capitol Hill yesterday, with its sweeping deregulation proposals generating the most controversy.

Many said they were glad that the administration had tackled the thorny issue of bank reform, but they said two of the most pressing aspects of the nation's banking crisis were inadequately addressed: The question of how to replenish the nearly depleted bank deposit insurance fund was not included in the plan, and the proposed modest limits on deposit insurance coverage don't go far enough.

In addition, the plan drew criticism for proposing to lower the barriers that have traditionally separated banking activities from other businesses. Other critics said it would pit small institutions against big money-center banks.

"As a general proposition I think we ought to separate commerce from banking," said Rep. Chalmers Wylie of Ohio, ranking Republican on the House Banking Committee. "A restructuring of the banking industry will take time, but I do expect the deposit insurance bill this session if nothing else."

Rep. John Dingell (D-Mich.), chairman of the House Committee on Energy and Commerce, called the proposal "bad medicine" reminiscent of the deregulation that helped bring down the savings and loan industry. The proposed regulatory consolidation would not provide for adequate supervision of bank holding companies, he said, placing "our entire financial system ... at extreme risk."

Both Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, and Sen. Donald W. Riegle Jr. (D-Mich.) commended the administration for taking on bank reform, but both said they did not want to give banks broad new powers until regulation is strengthened and deposit insurance reforms are enacted.

Many in the banking industry hailed the effort.

Edward Yingling, director of the American Bankers Association, said, "We like the fact that they have come out with a proposal," but its success "may well depend upon how much of a priority the president gives it."

Dennis Weatherstone, chairman of J.P. Morgan Bank of New York, said the plan "serves the national interest by making banking and finance sounder and more efficient," a sentiment echoed by Continental Illinois Corp. Vice Chairman Dick Huber, who called it "a very sound, sensible proposal."

Philip Vallandingham, president of the Independent Bankers Association, which represents the nation's small banks, was more cautious, expressing "serious concerns" about potential "massive consolidation of economic and financial power into the hands of a few giants."

Leaders in the financial services industry were less enthusiastic.

On Wall Street, Merrill Lynch & Co. and other major retail firms were unhappy with the Treasury proposal to remove federal insurance from certificates of deposit sold by brokerages.

Gedale B. Horowitz, chairman of the Securities Industry Association in New York, said the Treasury proposal "moves in the right direction but doesn't adequately protect the taxpayer." The Treasury should do more to ensure that when banks become active in the securities business that the funds involved are not covered by deposit insurance, he said.

In the past, interest groups might have determined the fate of banking reform proposals, but some in Congress now say that the health of the banking system has become a pressing economic and political issue that elevates it above parochial interests.

There also were concerns about a range of other policy issues. Some said the plan does not eliminate the so-called too-big-to-fail doctrine, which holds that very large banks can never be allowed to go out of business because of the potential ripple effect on the economy.

"I'm very concerned that they didn't come to grips with too-big-to-fail. We need to do away with that concept," said William Isaac, head of Secura Group and former chairman of the Federal Deposit Insurance Corp.

Within some parts of the industry as well as in Congress there were sentiments that the Treasury had failed to come to grips with true deposit insurance reform, although the Independent Bankers Association of America applauded the decision to step back from more radical reform measures that had been under consideration.

The proposal calls for insuring up to $100,000 per depositor in a failed institution, plus $100,000 for retirement accounts. Currently, a depositor can have multiple accounts insured up to $100,000 each.

The proposal to create a powerful regulatory body, the Federal Banking Agency, also drew criticism.

"The regulatory structure doesn't make any sense," said Rep. Bruce Vento (D-Minn.), a member of the House Banking Committee. "I'm troubled by the fact that they're trying to merge their way out of the problem."

Stephen E. Bell, manager of the Washington office of Salomon Brothers Inc., the New York investment firm, summarized a variety of sentiments, saying he favors the proposals but they face an "uphill battle" in Congress. "The people on the Hill have one refrain: 'No more S&Ls.' "

They are "absolutely terrified of this turning into another S&L situation," he said.

Members of Congress, he said, know they have to reform deposit insurance and recapitalize the bank insurance fund, but he doubted whether support went beyond those issues.

"We're not at a critical mass," he said.

Staff writer Stan Hinden contributed to this report.