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
(D-Nev.).

Republicans said their opposition vote would not prevent
their party from pursuing bipartisan negotiations on the bill.

{mosads}President Barack Obama and congressional Democrats have
looked in recent weeks to build momentum behind new regulations, particularly
over the biggest Wall Street banks.

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.