The

Treasury Department

, signaling a new phase in its $700 billion financial-rescue plan, is considering requiring that firms seeking future government money raise private capital in order to qualify for public assistance, the

Wall Street Journal

reports.

The move isn't expected to apply to the existing $250 billion capital-purchase program, which is already injecting money into banks. But Treasury is considering attaching such conditions to any of its future capital investments, the newspaper reports, citing people familiar with the matter.

Treasury also is unlikely to conduct any auctions to purchase bad loans and other troubled assets -- the original intention of the $700 billion rescue plan. Instead, Treasury is expected to continue focusing on injecting capital directly into the financial sector, the

Journal

reports.

Treasury Secretary Henry Paulson may outline some of these changes Wednesday, when he provides an update on the Troubled Asset Relief Program.

Treasury has just $60 billion left in its rescue fund, and either the current or next administration will have to turn to Congress to request the second half of the promised $700 billion, the

Journal

reports. Treasury has so far committed $250 billion to banks and is spending an additional $40 billion to buy preferred shares in

American International Group

(AIG) - Get Report

.

The Treasury Department is expected to widen its program to inject capital into smaller, closely held banks, and is considering expanding its rescue to other nonbank financial institutions, such as insurers and specialty-finance companies. It may also do another round of financing for publicly traded banks. Democrats in Congress are pushing for the program to be opened to the ailing auto sector.

In another step, U.S. bank regulators could announce guidelines this week designed to encourage U.S. banks to remain active lenders as financial markets are squeezed, the

Journal

reports.

The fact the Treasury Department may now require firms to raise money marks a new phase for the government, which had resisted such a move previously. Before launching its $250 billion capital-purchase program last month, Treasury toyed with requiring banks to raise matching funds alongside any government investment, but it thought that might discourage some firms from participating. It also worried that firms would not be able to raise private money in the current market environment, the newspaper reports.

This article was written by a staff member of TheStreet.com.