Republicans soften opposition to financial reform

House Minority leader John Boehner (R-OH) and Senate Minority leader Mitch McConnell (R-KY) comment on their meeting with President Obama and the bipartisan Congressional leadership about financial reform, at the White House, April 14, 2010.

WASHINGTON (Reuters) - Republican lawmakers on Tuesday took a more conciliatory tone toward Democratic proposals to crack down on Wall Street as the U.S. Senate delayed debate on a financial reform package until next week.

The change in rhetoric could signal the two sides are moving closer to a deal after months of wrangling over how to overhaul regulations in the wake of the financial crisis.

Senate Banking Committee Chairman Chris Dodd said lawmakers have reached agreement on 80 to 90 percent of the reform bill.

"We are all optimistic that this can be fixed," said Senate Republican Leader Mitch McConnell.

Democrats are seeking at least one Republican vote in the Senate to overcome procedural hurdles to the financial reform bill and are trying to build on widespread anti-Wall Street sentiment ahead of November's mid-term elections.

President Barack Obama, who will speak in New York City on Thursday on the need for reform, telephoned recently elected Republican Senator Scott Brown of Massachusetts on Tuesday to discuss the issue. Democrats are targeting him and other moderate Republicans, seeking support for the Senate bill.

The full Senate had been expected to begin debate on the bill on Thursday, although a Democratic party aide on Tuesday said that debate would be delayed until next week.

Democrats are trying to use problems in the banking sector, including last week's move by the U.S. Securities and Exchange Commission to charge Goldman Sachs with fraud, as leverage for reform. Britain's financial regulator launched its own probe of Goldman Sachs on Tuesday.

Last week, all 41 Republicans in the 100-seat Senate said they would oppose the Democratic bill as currently written.

Several Republicans said on Tuesday they hoped Dodd and Senator Richard Shelby, the top Republican on the Banking Committee, could hammer out a compromise before debate begins.

Shelby told Reuters talks were making progress, but he was not sure whether they would be finished by Monday, when Democrats plan to bring the bill to the floor.

Susan Collins, another moderate being courted by the administration, told Reuters she would not side with Democrats unless Dodd and Shelby have come to a deal -- a process she thinks could take weeks.

Republican Senator Olympia Snowe, who was wooed on Monday by Treasury Secretary Timothy Geithner to support the bill, said she is hopeful compromises could yield bipartisan support.

The first test of Republicans' resolve may come on Wednesday, when the Senate Agriculture Committee considers a derivatives bill that would force big banks out of the $450 trillion derivatives market.

Ethan Siegal, an analyst with The Washington Exchange, a private firm that tracks Congress and the White House for institutional investors, said he has increased odds for the enactment of financial reform to 60-40 from even chances earlier this year.

Aside from Snowe, Collins and Brown, Siegal said he sees a number of Republican senators who may vote for financial reform, such as George Voinovich and Judd Gregg, who are retiring this year, as well as Bob Corker, who is not up for re-election this year.

CAPITALIZING ON BANKING WOES

Both Democrats and Republicans used a Capitol Hill hearing on Tuesday on the 2008 collapse of Lehman Brothers to talk about the bill.

Democrat Paul Kanjorski said the investment bank's practices point to the need for reform.

But Spencer Bachus, the top Republican on the House Financial Services Committee, warned that regulators should not be given more powers after they failed to use them wisely ahead of the financial crisis of 2008.

Citigroup Chief Executive Vikram Pandit, head of the third-largest U.S. bank, on Tuesday spoke out in support of a strong consumer protection authority under the reforms.

Striking a contrite tone at the firm's annual meeting, Pandit said the financial industry strayed from its basic principles, contributing to the financial crisis.

A key sticking point in the Democrats' plan is a proposed fund designed to help pay for the dismantling of troubled financial firms. Republicans have said it amounts to a standing bailout fund that will be used to prop up insolvent Wall Street firms deemed "too big to fail," and puts taxpayers at risk.

But House Democratic Leader Steny Hoyer said on Tuesday the fund was not central to the bill.

The Senate Banking bill has proposed a $50 billion fund, while the House bill passed in December called for large firms to pay up to $150 billion into such a fund. The new fund would be in addition to the Federal Deposit Insurance Corp, which also restructures and shuts down smaller banks.

Community bankers, who hold political clout, argue that the fund is "vitally important," saying that without the fund, big banks will still be perceived as too big to fail and maintain a competitive advantage.

Some lawmakers, such as Democrat Charles Schumer, would also like to include in the bill a tax on banks, as proposed by Obama to recoup government bailout funds.

Finance ministers from the Group of 20 nations will meet in Washington this week to consider global reforms, including a proposal by the International Monetary Fund for two new taxes on banks to fund future bailouts.