The Obama administration wants a super-charged Federal Reserve, but is balancing the expansion with a regulatory council that may check the Fed's new powers.

The Obama administration's "Financial Regulatory Reform: A New Foundation" recommends a council to aid the central bank in monitoring threats to the U.S. financial system. It also calls for a broad review of the Federal Reserve System structure.

But, on Capitol Hill, the proposal is still likely to end up a lightning rod for criticism of the central bank, raising questions about how much new power the Fed will actually gain at the end of the day.

The administration's financial regulatory reform proposal calls for the Fed to serve as an uber regulator of all large, interconnected firms that could jeopardize the financial system.

"These proposals would put into effect the biggest changes to the Federal Reserve's authority in decades," the administration wrote in a draft paper on its reform proposals.

However, skepticism of the Fed runs high in Congress. Even as experts laud the Fed for launching unprecedented programs to stem the worst financial crisis in decades, lawmakers such as Sen. Bernard Sanders, I-Vt., argue that Fed should disclose the names of the companies that have benefited from its lending programs. Other lawmakers argue the central bank failed to adequately regulate financial firms and address banks' risky practices ahead of the crisis.

Additionally, critics have argued that the central bank's tasks should be scaled back so that it can focus solely on monetary policy.

"There is significant opposition to increasing the powers of the Fed in Congress and significant concerns over Fed independence," said Eurasia Group analyst Dan Alamariu. "This proposal is kind of a middle ground, trying to satisfy the Congress' wishes for a council-based approach and at the same time, having the Fed play a significant role within that council."

Senate Banking committee Chairman Christopher Dodd, D-Conn., and others have called for a council of regulators to police systemic risks, rather than solely giving that authority to the Federal Reserve.

The Obama administration's regulatory overhaul seems to acknowledge such concerns by recommending a council as a way to coordinate with the Fed on systemic risk issues.

According to the proposal, the new council would be led by the Treasury secretary and would also include the Fed chairman and various other regulators. It would "facilitate information-sharing" and identify emerging risks and advise the Fed about firms that could threaten financial stability.

It also seeks to amend the Fed's lending authority to require the central bank to win approval from the Treasury secretary before extending credit to institutions in "unusual and exigent" circumstances. The central bank has invoked its emergency powers many times since the start of the financial crisis to help aid companies such as Bear Stearns and American International Group Inc. (AIG).

Furthermore, the proposal calls for a comprehensive review of the Federal Reserve System.

The administration also recommends a new, separate consumer-protection agency to protect consumers when it comes to credit cards and mortgages.

The question is whether these sideline proposals to review and cap the Fed's authority will be enough to soothe Capitol Hill concerns about the larger plan to make the Fed the dominant regulator of the U.S. financial system.

That said, it's likely the plan will look much different after lawmakers have a chance to review it, hold hearings and make modifications.

"There continue to be real concerns regarding the conflicts of the Federal Reserve System, a la, the abrupt resignation of the chairman of the New York Fed last month," said Lendell Porterfield, the head of a bipartisan government relations firm in Washington and a former senior adviser to Sen. Richard Shelby, R-Ala.

He referred to Stephen Friedman, who resigned as chairman of the board of the Federal Reserve Bank of New York amid concerns about his role as a director and shareholder of Goldman Sachs Group Inc. (GS).

Another sign of lawmakers' frustrations comes in the form of legislation introduced by Rep. Ron Paul, R-Texas, that would expand the Government Accountability Office's authority to audit the Fed. The plan is gaining steam, with some 232 co-sponsors, meaning that more than half of the House of Representatives back the measure.

Meanwhile, Republican leaders in the House have drafted their own regulatory reform proposal that would scale back the Fed's authorities rather than boost its power.

"Some in Congress already believe the Fed has sacrificed monetary policy for the sake of the banking system. How does adding more duties complicate or compromise their existing responsibilities?" said Porterfield.

On the other hand, proponents of a dramatic boost in the Fed's powers argue that the White House's regulatory revamp should have gone further.

"The need to win a consensus across all the regulators, with their different views, constituencies, and institutional interests is likely to make it excessively hard to achieve the desired systemic safety," said Brookings Institution Fellow Douglas Elliott.

- By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255, maya.jackson-randall@dowjones.com