Though the Federal Reserve Board is on the cusp of gaining what every agency craves—more power—it could lose the one characteristic that has made it such a substantial force over the decades: political independence.

The financial crisis has laid bare the need for tougher regulation of firms such as American International Group Inc. and Bear Stearns Cos., whose collapse would be catastrophic for the broader economy. Prominent figures in Congress, including House Financial Services Committee Chairman Barney Frank, say the Fed should fill that role.

But in exchange for more authority over the most systemically important institutions, observers say, the Fed could find itself subject to politics like never before. Increased scrutiny of the Fed's regulatory actions could threaten its ability to conduct monetary policy, which, observers said, is premised on independence from political forces.

"The great danger is it loses its independence on the monetary policy side," said George Kaufman, a finance professor at Loyola University in Chicago. "The short-term consequences of an action may be unfavorable, even though the long terms are favorable. In the political framework, when the long run is two years, there would be pressure to produce 'favorable' results in the short term, which basically means lower interest rates, even though the consequences in the long run could be quite detrimental."

Fed officials are acutely aware of the threat that broader supervision power could pose to their independence. Chairman Ben Bernanke is scheduled to discuss the issue today in an appearance at the Council on Foreign Relations.

In testimony before the Financial Services Committee last month, he walked a tightrope by expressing support for the concept of regulating systemically important institutions while not lobbying for the Fed to gain those powers. "There are probably a number of different ways to organize this, and the Fed might be a principal regulator or it might be coordinated with others," he said. "It would depend on Congress' view on what is the most effective mechanism."

Bernanke did say the Fed has long played an outsized role in resolving crises.

"The Fed was founded principally, not to manage prices or output, but to manage a financial crisis," he said. "That's why the Federal Reserve was created, and it has a long tradition of being involved in those issues."

Some members of Congress are clearly seeking more involvement by the Fed.

Last week Sen. Jim Bunning, R-Ky., promised to block funding for the central bank if it did not reveal more information about the AIG bailouts. Rep. Michele Bachmann, R-Minn., who sits on House Financial Services, said "a full and open audit of the Fed is in order" before it gets systemic risk powers.

Those threats foreshadow the type of pressure the Fed could face if it gained systemic supervision authority.

"It would definitely undermine the Fed's independence and make it a more explicitly political institution," said Bert Ely, an independent consultant in Alexandria, Va. "They'd have to coordinate more closely with the Treasury. They'd get dragged before Congress more often, and Congress would look in on their activities more."

Some observers say the Fed's independence is already diminished. Critics are particularly concerned that the White House essentially took over a program to lend up to $1 trillion against asset-backed securities.

"There's not much independence left at the moment," Kaufman said. "Look at the joint projects between the Fed and the Treasury, the Fed coming over to the White House."

Still, President Obama is said to have expressed support for keeping the Fed an independent part of the government. Others say handing the Fed more power would do little to weaken its autonomy.

"People on the Hill are very reluctant these days to do anything that smacks of interfering with the regulatory process," said Gil Schwartz, a former Fed lawyer who now works in private practice. "For all intents and purposes, the Fed is the systemic regulator now. … I don't see how officially designating them as the systemic supervisor, which gives them broad authority to get information and analyze it, changes things much."

Alex Pollock, a resident fellow at the American Enterprise Institute, said the Fed continues to garner tremendous respect from legislators. "Congress is full of Fed-ophiles, those who just love the Fed."

Still, the debate continues over whether Congress should let the central bank continue supervising the industry at all.