U.S. Republican Senator Richard Shelby said on Monday he believed all 41 Republican senators would vote against launching floor debate on a financial reform and try instead to negotiate changes to it.
Shelby, speaking at a meeting of the Independent Community Bankers Association, said Republicans had a better chance of getting strengthening provisions aimed at preventing future bank bailouts if they can halt it from being considered by the full Senate, where Democrats have the majority.
"If we hang together on the floor, we can create critical mass," Shelby said, adding that Republican negotiating power is stronger before the measure goes to the Senate floor.
"If we just pass a bill in the Senate and go straight to conference with the house, what have we accomplished?"
Meanwhile, a senior U.S. Treasury Department official, speaking to the same group, said on Monday that opponents of financial market reform were trying to preserve loopholes that let big Wall Street firms reap huge profits.
In remarks prepared for delivery to the Independent Community Bankers of America, Assistant Treasury Secretary for Financial Institutions Michael Barr said market discipline alone failed to prevent a crisis so reforms are needed.
"Opponents of reform are seeking to protect vested interests on Wall Street that have benefited from the flaws in the regulatory system and want to perpetuate those flaws," he charged.
The comments come as the most sweeping overhaul of U.S. financial regulation since the Great Depression, including tough new rules for the derivatives market, was slated for a crucial test vote in the U.S. Senate on Monday.
As Wall Street reeled from more revelations out of the U.S. government fraud case against Goldman Sachs , Democrats seized the political initiative to advance their bill, months in the making and said to be 1,340 pages in length.
The future shape and profitability of the banking industry hangs in the balance, more than two years since the worst financial crisis in generations unleashed reforms worldwide.
The stakes are high for President Barack Obama.
Since the recent passage of his landmark healthcare restructuring, he has sharply criticized Wall Street in speeches backing the Democratic financial regulation bill.
Senate Majority Leader Harry Reid has set a procedural vote to begin debate on the bill for Monday at 5 pm EST. Republicans have vowed to vote to block consideration of it, although closed-door talks about a bipartisan agreement carried on.
On Sunday, sources told Reuters that the bill will include provisions that would require banks to spin off business units involved with trading swaps, which is a type of financial contract implicated in the fall of bailed-out insurer AIG .
Sources said the bill will contain proposals being put forward by Democratic Senate Agriculture Committee Chairman Blanche Lincoln, whose approach to new rules for the unpoliced, $450-trillion over-the-counter derivatives market has been harder-hitting than earlier proposals.
Other controversial parts of the Democrats' bill include forming a new consumer protection watchdog and devising a new government process for dismantling troubled financial firms.
With an eye to ending bailouts of 'too big to fail' firms, like Goldman Sachs, Democrats want a new "orderly liquidation" process.
As proposed, it aims to protect taxpayers from costly bailouts, like that of AIG, while shielding the economy from shock bankruptcies, like Lehman Brothers' 2008 collapse.
Dodd, Shelby Measured
The chief antagonists in the debate—Democratic Senate Banking Committee Chairman Christopher Dodd and Republican Senator Richard Shelby—did not meet on Sunday, aides said.
Shelby, the banking committee's top Republican, told ABC's "Good Morning America" program on Monday that lawmakers would continue to discuss the bill but that a deal was not imminent.
"I don't believe we'll have a deal today," he said, adding that he would meet with Dodd at 2 p.m. "I believe we're going to get a good bill, but that's what we want, we want a strong bill," he said.
Republicans have said they oppose the Democrats' bill on various grounds, including calling it a costly overreach of government that could reduce credit flows.
Hundreds of lobbyists for banks and Wall Street, sometimes working closely with Republicans, have been working for months to block the reform plans, which threaten profits, particularly in the lucrative derivatives market.
With 41 votes under their control in the 100-member Senate, the Republicans are able to block the Democrats' with the threat of a filibuster.
The Democrats can only stop the procedural move if they have 60 votes—they need to persuade one Republican to vote to let formal debate on the bill begin. Reid plans an initial test of both sides' cohesion on Monday.
Corker Wants Agreement
Republican Senator Bob Corker, who has been involved in the bipartisan talks, told ABC's "This Week" program that it was "very likely" Republicans would stick together and block consideration of the bill if a bipartisan alternative is not produced beforehand.
"It's very important that we reach that bipartisan agreement first," Corker said.
The U.S. House of Representatives approved a financial reform bill in December. Whatever the Senate produces would have to be merged with the House bill before a final measure could be sent to Obama to be signed into law. Analysts expect it could happen by mid-year.
Intensified efforts in Congress and from Obama on reform have come amid a high-profile fraud case brought by the U.S. Securities and Exchange Commission against Goldman Sachs, a titan of Wall Street with deep political connections.
Goldman released three-year-old emails over the weekend that showed bond trader Fabrice Tourre wrote of the impending collapse of the subprime mortgage market and how he was masterminding ways at Goldman to make money from it.
Tourre is the only individual charged by the SEC in its case. Goldman released the emails as it readies for its appearance before a Senate panel on Tuesday.
Goldman Chief Executive Lloyd Blankfein and Tourre are slated to testify, with other former and current executives.
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