WASHINGTON, Nov 25 (Reuters) - The U.S. Congress is debating proposals that could change the Federal Reserve's role in the financial system and expose the central bank to more scrutiny, threatening its cherished political independence.

Following are brief descriptions of regulatory reform proposals affecting the Fed and possible scenarios for them:

HOUSE PROPOSAL

* House of Representatives Financial Services Committee is considering a systemic risk regulation bill agreed upon by House Democrats and the Obama administration to allow Fed to limit credit exposures at financial firms, block acquisitions, restrict pay and shut down undercapitalized firms.

* Bill makes Fed part of an inter-agency Financial Services Oversight Council chaired by Treasury secretary.

* Bill would strip Fed of its consumer protection job and give it to new agency.

* Long-time Fed critic Republican Representative Ron Paul won surprise approval for amendment to allow audits of monetary policy and the Fed's lending to financial firms. Paul's measure had attracted 313 co-sponsors.

* Monetary policy audits under Paul's amendment could not become public until six months after any Fed decision.

* Bill would put new limits on Fed's 'lender of last resort power' by restricting its so-called 13-3 authority to lend money to firms other than banks in 'unusual and exigent circumstances.'

* Bill expected to undergo committee vote on Dec. 2.

SENATE PROPOSAL

* Senate Banking Committee is debating a bill to create a systemic risk regulation agency with an inter-agency board.

* Senate bill would strip Fed of consumer protection duties and relocate them in new agency, like House bill.

* Bill would also strip Fed of bank supervision duties and centralize them in new super-regulator for banking industry, a more dramatic step that House bill lacks.

* Bill would give power to name members of the boards of the 12 regional Fed banks to Washington, taking it away from banks in those regions. President would appoint regional Fed board chairmen, subject to Senate confirmation.

* Like House bill, Fed's 13-3 authority would be limited.

* Senate bill would permit audits of Fed emergency lending facilities, allowing for disclosure of borrowers after one year, but does not authorize audits of monetary policy.

* A separate bill mirroring Paul's measure in the House has been introduced in the Senate and has gained 30 co-sponsors.

HOUSE SCENARIOS

* In the House, if the Financial Services Committee approves the systemic risk bill, it would then be consolidated into a larger financial reforms bill to go to the House floor, likely in mid-December, for debate and amendments.

* On the House floor, Democrats could kill or weaken Paul's audit proposal. One way would be to allow more scrutiny of Fed emergency lending, but shield monetary policy decisions.

* After a House vote on financial reforms, with or without the Fed audit proposal, attention would shift to the Senate.

SENATE SCENARIOS

* Debate in the Senate Banking Committee is expected to extend well into 2010.

* Senate Republicans disagree with Banking Committee Chairman Christopher Dodd on key parts of his proposal.

* Approaching November mid-term elections may frustrate efforts to pass far-reaching financial reform legislation.

* Fed expected to lobby to block Paul provision. May cede consumer protection authority, but likely to fight to retain bank supervision authority.

* If Senate Banking Committee approves reforms like the ones Dodd is proposing, Fed would be relegated largely to managing monetary policy.

* Any bill approved in Senate would have to be reconciled with the House bill, then signed into law by the president.

MARKET OUTLOOK

* Financial markets could be unsettled if a measure opening interest rate decisions to audits survives.

* Investors could view Fed as under political pressure to keep growth humming, especially as elections approach. Inflation expectations and longer-term interest rates could rise. Fed officials have said economy could be harmed.

* Fed, knowing Congress is looking over its shoulder, could become more cautious and choose options that conform to established models, rather than using unconventional tactics.

* Or, the audit provisions, if enacted, could draw only a yawn from markets. Investors may assume monetary policy remains insulated from politics due to the six-month delay in making deliberations public. Fed officials could find their decisions are easy to justify to lawmakers whose constituents favor a tight grip on inflation and price stability.

* Markets could also view the Fed as weakened if Congress strips it of bank supervision duties. Britain is eyeing a bigger regulatory role for the Bank of England, which had focused solely on monetary policy, after the financial crisis exposed weaknesses in the oversight structure. Fed officials have argued their supervisory duties inform their rate decisions.

(Reporting by Mark Felsenthal and Kevin Drawbaugh; Editing by Andrew Hay) Keywords: USA FED/CONGRESS

(mark.felsenthal@thomsonreuters.com; +1 202 898 8329; Reuters Messaging: mark.felsenthal.reuters.com@reuters.net)

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