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WASHINGTON (Reuters) - Republicans and Democrats in the Senate share common ground on financial regulation, but the White House's stance on how to protect consumers from banking abuses remains an obstacle to legislation, a top Republican senator said on Friday.
Sen. Judd Gregg of New Hampshire, ranking Republican on the Senate Budget Committee, said in a television interview that the need for financial regulation was so widely recognized in Congress that he believes lawmakers will produce a bipartisan measure.
"There's a lot of common ground here. This really isn't a partisan issue," Gregg told CNBC. "This is an extremely complex exercise in getting governance right and the only really big philosophical difference here is how you protect consumers."
"These negotiations are going forward," he added. "My guess is that at the end of the day the Senate will have a fairly substantive, basically bipartisan product. But how we get there is not absolutely clear."
President Barack Obama has made financial regulation a top priority for 2010, as have governments in the European Union, which are also hammering out new rules meant to prevent a recurrence of the recent global financial crisis.
Judd spoke a day after the leading Democrat on financial regulation -- Senate Banking Committee Chairman Christopher Dodd -- said he was discussing legislation with Senator Bob Corker, a first-term Republican member of the panel.
Just six days earlier, Dodd had said he hit an impasse with Senator Richard Shelby, the committee's top Republican, in talks that have dragged on for more than a year over tightening oversight of banks and capital markets.
The Dodd-Shelby talks were torpedoed by one of Obama's key proposals -- creating an independent Consumer Financial Protection Agency to regulate mortgages and credit cards.
A leading Wall Street money manager warned on Friday that uncertainly combined with angry Washington rhetoric toward Wall Street could jeopardize the U.S. economic recovery by causing banks to cut back on the lending to small and mid-size businesses.
"We are debating this hugely important issue in an inflammatory political atmosphere in which key participants seem determined to single out the banks for special retribution," Stephen Schwarzman, who heads the Blackstone Group, wrote in a Washington Post op-ed piece.
Gregg said he believes Dodd and Shelby had an agreement on consumer protection before talks broke off. "If the White House hadn't sort of pulled back the Democratic membership on that issue, we could all go forward in a bipartisan way," he said.
Republicans want consumer protection melded with efforts to maintain the soundness of the financial system, fearing that a free-standing consumer agency would be a powerful vehicle for interests hostile to Wall Street.
In a statement late on Thursday, Corker called creation of the consumer protection agency the debate's hot-button issue and said he and Dodd agreed to set that topic aside "for now."
But Gregg said he opposed any negotiating approach that would separate consumer protection from needs to curb reckless banking practices.
"That's going to be politically an untenable position," he told CNBC. "Our ability to get the consumer protection right means that it really needs to be merged into the entire process of negotiating the regulatory reform. I don't think you can separate the two."
The New Hampshire Republican also said talks between him and Democratic Sen. Jack Reed of Rhode Island, a banking committee member, have already made "very strong progress" on the issue of derivatives.
Additional reporting by Kevin Drawbaugh, editing by Philip Barbara