One Senate Democrat, Sen. Ben Nelson (Neb.), joined 40 Republicans in voting against the bill. Nelson had been pushing for a provision backed by Warren Buffett that would have largely exempted existing derivatives contracts from the bill's new rules.
Democrats seized on the party-line, 57-41 test vote to
portray Republicans as standing up for Wall Street banks that helped push the
economy into the worst recession since the Great Depression.
“A party that stands with Wall Street is a party that stands
against families and against fairness,” said Senate Majority Leader Harry Reid
Republicans said their opposition vote would not prevent
their party from pursuing bipartisan negotiations on the bill.
The Monday vote came on the eve of one of the highest profile congressional hearings into the crisis, in which the most storied Wall Street bank is set for a grilling about practices that the Securities and Exchange Commission (SEC) said amounted to fraud.
Senators are set to question Goldman CEO Lloyd Blankfein and firm employee Fabrice Tourre about SEC charges that the firm defrauded investors on investments tied to the housing market.
Meanwhile, Senate Democrats could choose to quickly call up financial reform again. A senior Democratic aide said Reid would stick with Wall Street reform and could force Republicans to vote again to block debate this week.
“Our hope is to continue to move forward with Wall Street reform,” the aide said. “Sen. Reid could move to reconsider the bill.”
The aide declined to discuss the possibility of bringing other business, such as pending legislation on food safety, to the floor.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.) plan to continue close talks on a bipartisan compromise.
“I'd like to get a bill this week or next week, as soon as we can. I don’t want to unduly delay anything,” said Sen. Richard Shelby (R-Ala.), the top Republican on the Senate Banking Committee, before the Monday vote.
Both members say they are making progress, but the parties remain split on major elements, such as the scope of a new consumer protection office, the power to dissolve a failing financial firm and new regulations on the multi-trillion-dollar derivatives market.
Republican aides highlighted a lengthy set of differences on Monday, and said they might quickly unveil their own legislation to change financial regulations.
The Republican bill also would include changes to the mortgage giants Fannie Mae and Freddie Mac that were taken over by the federal government amid massive losses, an aide said.
Republicans criticized the Democratic bill for perpetuating government bailouts and for setting up a consumer protection bureau that would have sweeping and unrivaled powers over the economy.
Republican aides said Dodd and Shelby were in close talks on a proposal, known as the “Volcker rule,” to limit the power of big banks. They were also discussing how much power the federal government should have to preempt state rules on consumer protection.