It's also unclear which party has proposed the idea, which is said to be nowunder consideration.
Sources say the proposal could have come from either Democratic committee chairman Chris Dodd of Connecticut or GOP member Bob Corker of Tennessee. The two been negotiating for weeks in an effort to iron out a bipartisan package of reforms for the financial sector.
Republicans rejected a proposal from Dodd late last week that would create a somewhat similar entity within the Treasury Department called the Bureau of Financial Protection. Based on a outline of the BFP obtained by CNBC.com, its powers appear to be greater than what is now being proposed.
Dodd spokeswoman Kirstin Brost said, "Sen. Dodd is keeping members informed on how things are progressing. We do not have an agreement yet. He hopes to have a consensus bill in the coming days."
Corker's office would only say that the senator "remains optimistic that we will be successful in coming to agreement on a good financial regulatory reform bill."
The Fed already handles some consumer protection functions, as well as overseeing bank holding companies. Nevertheless, both Republicans and Democrats alike have criticized the Fed's performance leading up to and during the financial crisis. Some in Congress would even strip it of all powers other than those directly related to monetary policy.
Talks have taken place on almost a daily basis in recent weeks, including the past weekend, with both sides stressing that some differences at this stage are solely in the language of the bill.
That said, the two sides started out very far apart on the consumer watchdog component.
The GOP has steadfastly rejected the creation of a powerful independent agency on the grounds that its policies and actions could potentially clash with existing regulators, creating safety and soundness issues within the financial system.
On the other hand, Dodd's original draft legislation in November called for a Consumer Financial Protection Agency, which was part of a House bill passed late last year and an idea first advanced by the White House.
Since his first draft was deemed dead on arrival, Dodd has been working closely with Republicans, first with Shelby and more recently Corker, after Shelby and Dodd reached an impasse in early February.
There has, however, been general agreement on other key measures in the package, which include the creation of a systemic regulator council and federal authority to wind down the operations of wobbly too-big-to-fail financial firms to avoid a shock to the system, as was the case with Lehman Brothers in September 2008.
Another problem area is the regulation of over-the-counter derivatives. Sources say it may not be included in the draft legislation underway and would instead be handled as an amendment later on in the legislative process.
Financial reform—always among President Obama's top legislative priorities—has assumed even greater importance since health care reform stalled.