Elizabeth Warren, chief watchdog of America's US$700 billion ($1.1 trillion) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that received Government money.
In a damning report questioning the Administration's approach to saving the financial system from collapse, Warren -
a Harvard law professor and chairwoman of the congressional oversight committee monitoring the Government's Troubled Asset Relief Programme - will also call for shareholders in those institutions to be "wiped out".
"It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."
She declined to give more detail but confirmed she would refer to insurance group AIG, which has had US$173 billion in bailout money, and banking giant Citigroup, which has had US$45 billion in funds and more than US$316 billion of loan guarantees.
Warren also claims there are "dangers inherent" in the approach taken by Treasury Secretary Tim Geithner, saying he has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls.
"We want to ensure that the Treasury gives the public an alternative approach," she said, adding she was worried banks would not recover while they were being fed subsidies. "When are they going to say, 'Enough'?"
She said she did not want to be too hard on Geithner but that he must address the issues in the report.
"The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."
The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression.
"Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the Government must be replaced; and thirdly, the equity investors are always wiped out."
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