The alternative to Democrats' plan came right after the two sides reached a compromise on how to dismantle large failing firms. Senators voted 93-5 to eliminate a contentious $50 billion fund that would have been used to pay for a firm's liquidation.
Republicans offered a weaker alternative to consumer protection measures that are central to President Obama's Wall Street regulation plan, opening a new front Wednesday in the Senate debate over how to rein in financial institutions.
The Senate pivoted straight into that confrontation after reaching a compromise on how to dismantle large failing firms. In that agreement, senators voted 93-5 to eliminate a contentious $50 billion fund that would have been used to pay for a firm's liquidation.
Although it was supposed to be paid for by banks and not taxpayers, the proposal took a lot of criticism. The new plan, hatched by Sens. Christopher Dodd (D-CT) and Richard Shelby (R-AL), would have the Federal Deposit Insurance Corp. borrow taxpayer dollars from the Treasury to cover the cost of dissolving a failing firm.
Dodd said the money would be paid back later.
"We agreed to have it a post-payment responsibility, a fund that would be borne by creditors or the industry itself, based on whether or not there were enough assets in the failed institution to pick up the costs of winding down that firm that was failing," he said.
The new agreement would also require creditors who benefit from a liquidated company to pay back the government, and it would try to ban the fired managements of failed firms from working again in the financial sector.
But the agreement belied the remaining partisan disputes. And no disagreement displayed partisan differences more than the divide over consumer protections. The Republican plan would limit the enforcement power of a proposed consumer protection bureau and make its rules subject to approval by a top banking regulator.
The White House was quick to object. Spokeswoman Amy Brundage called the Republican proposal "nothing more than a lobbyist-influenced defense of the status quo and an attempt to water down the consumer protections" in the bill.
"We will not accept this," she said.
The GOP plan would create a division of consumer protection within the FDIC to oversee nonbank mortgage companies and write consumer regulations. The FDIC would have to sign off on those rules.
In contrast, the Democratic plan backed by the Obama administration would create an independent bureau within the Federal Reserve to police lending and other customer financial service transactions. It would have a freer hand to enforce its regulations.
In another departure from the pending Democratic bill, the Republican plan would continue the practice of having federal laws override state laws. Under the Democratic proposal, states would be allowed to write and enforce tougher laws, a provision opposed by the financial industry.
Creating a new consumer financial protection entity within the government is a central piece of the Obama administration's regulatory package. Obama has said he would veto legislation that contained consumer protections he deems too weak.
Republicans have complained that the Senate Democratic proposal, which is not as ambitious as the administration's, would be too sweeping and create a patchwork of state rules.
The consumer measure is one of an array of hurdles facing the legislation. The Senate was expected to hold its first set of votes on amendments later Wednesday. But while debate was well on its way, the endgame for the bill was far from clear.
"The Republicans have stopped us from doing anything on this bill," Senate Majority Leader Harry Reid (D-NV) said Wednesday. Reid has said he wants to complete the bill by the end of next week.
Senate Republican leader Mitch McConnell of Kentucky said the legislation should take longer to debate to permit votes on numerous amendments.
The parties agreed to drop a provision in the bill that would require banks to gather data about their customers and track the information by census tract. The provision was designed to help enforce consumer protections, but critics have said the provision was too onerous on financial firms.
Disputes over consumer protections, Federal Reserve oversight and regulation of complex securities are, for the moment, beyond compromise. Democrats and Republicans were preparing to fight those issues on the Senate floor.
Republicans intended to seek expanded exceptions in the regulation of complex securities. Democrats had their own contentious proposals. Several aimed to make the bill tougher on banks, calling for limits on bank size or restrictions on their ability to trade on their own accounts.
Sen. Bernie Sanders, a Vermont independent, obtained bipartisan support for an amendment that would require an extensive audit of the Federal Reserve. Administration and Fed officials were opposing the measure, saying it would interfere with the Fed's independence in setting monetary policy.
NPR's Audie Cornish contributed to this report, which used material from The Associated Press
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