The administration will also have to use its political skills to strengthen the Fed. While Democrats generally agree with a need for regulatory changes, many oppose relying too heavily on the Fed.
They say its status as a politically independent organization would make it difficult to keep the newly empowered organization in check.
"What happens if the representatives of the people and the president want a certain action and it's not taken?" asked Rep. Paul Kanjorski of Pennsylvania, a senior Democrat on the House Financial Services Committee.
"You can't fire the chairman of the Federal Reserve," Kanjorski said.
Sen. Christopher Dodd, chairman of the Banking Committee, is likely to become Obama's toughest opponent on Capitol Hill.
In private deliberations with the administration, Dodd has advocated an alternative plan to strip the Fed of its regulatory role entirely. Dodd's plan would create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks.
Under this scenario, the Fed would focus on its existing mission as the nation's central bank — setting monetary policy and acting as a "lender of last resort."
Lawmakers, including Dodd, also say they are open to the administration's proposal that the Federal Deposit Insurance Corp. be put in charge of dismantling financial institutions that the Fed and Treasury Department decide pose a threat to the economy.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has not taken a position on the administration's plan to bolster the powers of the Fed.
But a number of other House members, including Republicans, say it's a terrible idea.
In a staff document circulated last week, House Republicans on the committee argued that expanding the Fed's responsibilities and increasing government spending pose "a far more significant source of 'systemic risk' to our nation's economy than the failure of any specific financial institution."
Associated Press writers Alan Zibel, Jeannine Aversa and David Carpenter contributed to this report.