Senate Republicans have blocked Democrats' efforts to begin debate on overhauling the nation's financial regulatory system. The measure is aimed at avoiding a recurrence of the near collapse of the financial system in 2008.
Undaunted by a Senate setback, Democrats appeared increasingly confident Monday they will be able to take advantage of Americans' anger at Wall Street and push through the most sweeping new controls on financial institutions since the Great Depression.
The Senate, in a 57-41 vote, failed to get the 60 supporters needed to proceed on the regulatory overhaul. One Democrat, Sen. Ben Nelson of Nebraska, joined with the Republicans.
But the evening vote was just part of a legislative ballet keeping bipartisan talks alive. At the end, Senate Majority Leader Harry Reid switched his vote to "no," too, but that was just a maneuver that will enable him to call for a new tally as early as Tuesday.
Democrats believe that public pressure and the scent of a Wall Street scandal have given them the upper hand. Republicans themselves have taken up the Democrats Wall Street-bashing rhetoric and have voiced hope that a bill will ultimately pass. In that light, the path to final approval seems clearer than it ever did during the contentious debate over health care.
The financial overhaul bill is a priority of President Obama. The House has already passed its version of new bank regulations.
Less than an hour before the scheduled vote, the White House issued its official endorsement of the bill, saying Obama would oppose adding any loopholes.
Both the House and Senate bills, aimed at heading off any recurrence of the near collapse of the financial system in 2008, would create a mechanism for liquidating large firms that get into trouble, set up a council to detect systemwide financial threats and establish a consumer protection agency to police lending. The legislation also would require investment derivatives, blamed for helping precipitate the near-meltdown, to be traded in open exchanges.
But the two sides differed on several aspects, including how much enforcement authority a new consumer financial products protection entity would have. The GOP sought guarantees that taxpayers won't be on the hook for future bank failures, and it opposed the bill forcing banks to spin off derivatives trading.
Treasury Secretary Timothy Geithner told NPR's Melissa Block that the administration wanted to not only limit the size of the financial institutions, but also limit the amount of risk they can take. He said future bank failures would be dealt with without risk to the taxpayer.
"The most important thing this bill will do is to give the government the authority it did not have before this crisis to limit risk-taking, limit leverage by these large institutions," Geithner said. "But in addition to that, we're going to put a cap on how large they can get ... in the future by tightening up the existing limit, which restricts banks to having only 10 percent of the nation's total bank deposits."
Richard Shelby, the top Republican on the Banking Committee, said Monday before the vote, "Most Republicans want a bill, but they want a substantive bill."
The Alabama senator has been negotiating with committee chairman Chris Dodd (D-CT).
Shelby aides said he wants to tighten language that he believes would give the Federal Reserve and the Federal Deposit Insurance Corp. too much flexibility to assist large banks and their creditors. His aides have been writing an alternative to Dodd's legislation in the event negotiations fail.
Polls show the public increasingly eager to slap restrictions on financial institutions. Moreover, a lawsuit by the Securities and Exchange Commission accusing Goldman Sachs of fraud has gotten attention at this critical time.
In that climate, Democrats are prepared to cast Republicans as industry allies eager to weaken the legislation. At the same time, Democrats are trying to win over individual Republicans with some adjustments.
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