WASHINGTON Marathon negotiations in the Senate on financial regulatory reform were set to continue on Sunday with a renewed focus on financial consumer protections after key Republicans rejected a compromise offer from the banking committee chairman.
Sources told Reuters Saturday night that neither Democrats nor Republicans had embraced an offer made on Friday by Democratic Senator Christopher Dodd to scale back President Barack Obama's proposed Consumer Financial Protection Agency (CFPA).
The consumer watchdog idea remained a stumbling block to a bipartisan agreement on tightening bank and capital market oversight, a top domestic policy priority for Obama.
Dodd had circulated a proposal to make the CFPA a division of the Treasury Department, instead of an independent agency, which the president recommended in mid-2009 and which the U.S. House of Representatives has endorsed.
But in a setback for Dodd, his offer has been rejected by the banking committee's top Republican, Senator Richard Shelby, and fellow Republican Senator Bob Corker.
The sources said Shelby and Corker objected to the rule-writing power Dodd proposed for the consumer division, but not necessarily to the idea of the division itself being located in the Treasury Department or another federal agency.
On the opposite side of the contentious consumer watchdog issue, many Democrats were still holding out for an independent CFPA, said lobbyists and aides close to the talks.
"In our view, this language will change considerably before the bill advances to the floor of the Senate," said Jaret Seiberg, financial services policy analyst at investment advisory firm Concept Capital.
ANOTHER FIGHT ON SENATE FLOOR?
The struggle in the Senate suggested to some that new legislation -- still expected by many from Dodd next week -- may be narrower in scope than Obama's proposals of nine months ago, and a sweeping bill passed by the House in December.
"They're going to push real hard to get something out next week," said Brian Gardner, a policy analyst at investment firm Keefe Bruyette & Woods. "There's a chance that it could be a little bit smaller" than the House bill and Obama's proposals.
Provisions that could fall out of the package may include over-the-counter derivatives regulation, as well as proposals to give shareholders more say in electing corporate directors and determining corporate executive pay, Gardner said.
One of Dodd's boldest proposals from a November draft bill -- to consolidate the patchwork U.S. banking supervision system into one agency -- was unlikely to make it into the committee's final bill, a source familiar with negotiations told Reuters.
Senator Byron Dorgan, a senior Democrat, told Reuters in an interview on Friday the bill that Dodd is likely to bring out of the banking committee is "going to be watered down."
The bill will likely face further changes on the Senate floor. If it fails to do enough to end the notion that some financial firms are "too big to fail," Dorgan said, "We're going to have to have amendments on the floor."
It has been nearly a year and a half since a severe financial crisis tipped the U.S. economy into its worst recession in decades, and financial regulation has changed little, despite a worldwide crackdown effort.
For Congress, time is running short. Midterm elections are approaching in early November. Between now and then, Congress will be in session for perhaps 23 weeks.
It remains to be seen whether that is enough time to move a bill out of the banking committee, debate and vote on it on the Senate floor and, if it passes there, reconcile it with the House bill to get a final measure to send to Obama.
"The calendar is starting to become a factor," Gardner said. "All in all, I think the banking committee is headed toward getting a bill done before the end of the year."
(Additional reporting by Rachelle Younglai and Karey Wutkowski; editing by Todd Eastham and Philip Barbara)