WASHINGTON -- The Federal Reserve would become the nation's most powerful financial overseer, an approach that is becoming a flashpoint as lawmakers and consumer groups attack the central bank for its role in creating and handling the financial crisis.

The proposal, if passed into law, would represent one of the biggest changes ever in the Fed's role. The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the...