* Democrats strip out $17.9 bln tax from bill
* Tap TARP bailout, raise FDIC reserve to pay for bill
* Aim is to secure support from moderate Republicans
* Passage of bill seen as likely, unclear when
By Rachelle Younglai and Kevin Drawbaugh
WASHINGTON, June 29 U.S. Democrats on Tuesday
stripped out a controversial tax from their landmark financial
reform bill in a scramble to win the votes needed to pass it
Democrats hoped the change would draw enough moderate
Republicans to allow them to pass the sweeping overhaul through
both chambers of Congress and send it to President Barack Obama
to sign into law by July 4.
Though a supposedly final version of the bill had been
hammered out last week, Democrats called a fresh negotiating
session after support for the bill appeared to be waning.
Heeding the concerns of moderate Senate Republicans, they
axed a $17.9 billion tax on large financial institutions that
was added to cover the bill's costs in the wee hours on Friday
as lawmakers wrapped up an all-night bargaining session.
Their new plan would cover most of the bill's costs by
shutting down the government's $700 billion bank bailout fund
ahead of schedule. It also would raise the amount that banks
must pay to insure their customer's deposits.
"I'm prepared to make some compromises to get this very
important bill through," said Democratic Representative Barney
Frank, who has overseen the process.
Take a Look on financial regulation reform [nFINREG]
Factbox on financial regulation bill [ID:nN24127899]
Factbox on reforms missing from bill [ID:nN25152283]
Graphic on Senate vote link.reuters.com/hef64m
Democrats hope they can still meet their July 4 timetable.
Leaders in the House of Representatives set the stage for a
quick vote on Wednesday, while their counterparts in the Senate
hoped to act by the end of the week.
But their plans may be complicated by the death of
Democratic Senator Robert Byrd. His absence leaves them one
vote short of the 60 needed to clear a Republican procedural
hurdle in the 100-seat chamber.
Furthermore, Byrd's body was scheduled to lie in state on
the Senate floor on Thursday, delaying any legislative action.
Analysts said while that timetable may slip, they were
confident the bill would eventually become law.
"Not a question of if, but when," Concept Capital analyst
Chris Krueger said in an e-mail.
The bill, which aims to prevent a repeat of the 2007-2009
financial crisis that shook the global economy, is a top
priority for Obama and would give him and fellow Democrats a
big legislative win ahead of November congressional elections.
RETIRING TARP EARLY
It would force banks to reduce, but not cease, risky
trading and investing, set up a new government process for
liquidating troubled financial firms and establish a new
consumer-protection bureau. It would saddle financial firms
with a host of new regulations and reduce their profits.
Wall Street and many Republicans have tried to delay or
water down the bill, but it has grown stronger during its
yearlong journey though Congress as Democrats have ridden a
wave of public disgust at an industry that has awarded itself
fat paydays while the rest of the country struggles with high
A handful of moderate Republican senators, mindful of the
measure's popularity, managed to win concessions in return for
helping the Democrats advance it, but several threatened to
withdraw their support over the bank tax.
The new funding mechanism would shut down the politically
unpopular Troubled Asset Relief Program, which was set up in
2008 to buy toxic assets from banks but was instead used to
bail out teetering Wall Street giants and Detroit automakers.
The program is currently scheduled to expire in October,
except for companies like General Motors that still rely on
Shutting it down early would save $11 billion, Democrats
The bill would raise another $5.7 billion by raising the
fees that banks pay to the Federal Deposit Insurance Corp to
insure their deposits from 1.15 percent to 1.35 percent.
Republicans said the new approach was simply a budgeting
trick. The repaid bailout money should be used to pay down the
deficit, they said.
"This is fraud on the American taxpayer, that's clear and
simple," Republican Senator Judd Gregg said.
Democrats countered that they had to drop their original
funding mechanism, which would have cost financial firms at
least $50 billion, because of Republican objections.
(Additional reporting by Kim Dixon, Corbett Daly, Susan
Cornwell, David Morgan, Richard Cowan and Andy Sullivan in
Washington and Joe Rauch in Charlotte; writing by Andy
Sullivan; editing by Anthony Boadle)