The Treasury has decided to recommend phasing in limits on federal deposit insurance that within five years could reduce sharply the government guarantee for individuals with a total of more than $100,000 in various bank accounts, according to an administration official.

The Treasury's two-stage plan would initially limit an individual's coverage at each banking or savings institution and ultimately cap coverage at $100,000 for an individual, regardless of the number of institutions or accounts.

The long-awaited report, to be issued Tuesday, will propose the first scaling back of the federal deposit insurance program since the Banking Act of 1933 introduced government insurance as a way to halt Depression-era panics and runs on banks. But the proposal would delay the most far-reaching changes until further study on implementation is made by the Federal Deposit Insurance Corp.

The Treasury's recommendation on deposit insurance is expected to be one of the most controversial elements of its report on the state of the nation's financial services industry, in which the Bush administration is expected to recommend the most sweeping changes in half a century.

The report grows out of the 1989 legislation for cleaning up the ailing savings and loan industry. Congress required the Treasury to make a report about how to reform the deposit insurance system so the government and taxpayers would not be stuck paying for future bad management and reckless lending practices in the thrift industry.

If enacted by Congress, the Treasury proposal would lead within one year to the limiting of federal deposit insurance for each person to $100,000 per institution, plus an additional $100,000 insurance for individual retirement accounts and Keogh plans.

Under current law, individuals can have several different types of fully insured accounts in each institution and thus accumulate considerably more than $100,000 in government guarantees in a single financial institution.

The proposed change could affect people who have more than $100,000 deposited in one bank or thrift institution through multiple accounts -- individual, joint with spouse, investment clubs and revocable trusts for children. It would also affect people with more than one type of retirement account at a single institution.

Under the Treasury proposal, the FDIC would issue the exact guidelines within a year without needing further legislation from Congress.

The Treasury also will make a more far-reaching recommendation that within five years would limit deposit insurance to $100,000 per person throughout the entire banking system.

The result could be that depositors with more than $100,000 in insured accounts would receive only a fraction of their money if the institution failed. The fraction could equal $100,000 divided by the total amount of money an individual has deposited in all insured accounts nationwide.

For example, if a person has $200,000 in four different banks, including $15,000 at a bank that collapses, the government would only guarantee half of the money in the account at the failed bank, even though that account held less than $100,000.

Similarly, a person with $500,000 in eight different banks would receive only one-fifth of any deposit if one of the banks failed. But a person with only $100,000 would receive all of his money if the institution holding his money failed.

The rule would give the most protection to depositors with savings of $100,000 or less. However, there would not be any lifetime limit on how much an individual could collect from the government in insurance.

This proposal would not be implemented until the FDIC completes further study of the cost and effects of such a change. The Treasury has set a goal of five years for the implementation of the change.

The FDIC has estimated that enforcing the $100,000 nationwide ceiling for each person would cost $1 billion over five years. The Treasury said it is not clear how much money the government would save.

While uncertain until recently about how to accomplish that, Treasury Secretary Nicholas F. Brady has said that he would seek to "narrow the safety net" and to restore the original purpose of deposit insurance, which he said was the protection of small savers against the perils of the financial system.

Brady said that the system had been expanded and distorted to protect the wealthy and to remove the risk of failure for institutions that know the federal government will bail them out if their strategies fail.

If enacted by Congress, the Treasury's proposal could force savers to reassess their investment decisions.

New caps on deposit insurance could encourage people to seek higher returns in mutual funds or money market accounts, for example, because they would no longer be giving up the safety of federal insurance beyond the new limit.