"It needs to be done right," a source close to Geithner said. "How it gets implemented and how it gets defined is absolutely critical. We don't want to disrupt the ability of banks to lend."
The Treasury boss fears that political fears may now be overriding economic considerations, another industry source said.
He is not alone in his concern. The Dow plummeted and closed down 213 points after Obama's announcement Thursday.
While the proposal may be a significant step, Sorkin said, it wouldn't fully solve the problem and is one of the many issues the White House has to tackle to fix Wall Street.
As Obama pushed new regulations for banks, top Senate Democrats expressed uncertainty about having enough votes to reconfirm Bernanke as chairman of the Federal Reserve.
Bernanke, whose term expires at the end of the month, has been panned by some Republicans, who blame him for failing to stop Wall Street's reckless behavior.
Sen. Bernie Sanders, I-Vt., Sen. Jim Bunning, R-Ky., Sen. Jim DeMint, R-S.C., and Sen. David Vitter, R-La., have all put holds on Bernanke's nomination, which requires 60 votes to proceed to a vote. Three Democratic senators have also said they will oppose Bernanke.
"Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression," Sen. Russ Feingold, D-Wis., said in a written statement. "Under Chairman Bernanke's watch predatory mortgage lending flourished, and 'too big to fail' financial giants were permitted to engage in activities that put our nation's economy at risk."
Senate Majority Leader Harry Reid, D-Nev., met with Bernanke Thursday and issued a statement saying that he believes "more pressure needs to be applied to banks to lend money to small businesses and keep more Americans in their homes."
The "American people expect our economic leaders to keep Wall Street honest and level the playing field for middle-class families, and I will continue to hold their feet to the fire to ensure this happens," Reid said. "As the Senate prepares to take up chairman Bernanke's nomination, I look forward to hearing more from him about how he intends to address these issues."
Burton today said the president believes Bernanke is the right man for the job and will be reconfirmed.
"The president has a great deal of confidence in what Chairman Bernanke did to bring our economy back from the brink," he told reporters. "He continues to think he is the best person for the job and will be confirmed by the United States Senate."
If Bernanke is not reconfirmed, Sorkin said, "then the whole game does completely change," adding that he believes Bernanke "will still probably get confirmed."
ABC News' Huma Khan contributed to this report.