Financial Reform Fails Key Test Vote in Senate

Updated 6:22pm ET

Senate Republicans on Monday blocked Democrats’ attempt to begin debate on financial reform legislation, a widely expected early setback for the most sweeping overhaul of financial oversight since the Great Depression.

The Senate, in a 57-41 vote, failed to get the 60 votes needed to begin debate, the AP reports. One Democrat, Sen. Ben Nelson of Nebraska, voted with the Republicans to delay the start of debate.

The final outcome of the test vote clears the way for both parties to resume talks over key elements of the proposal, including consumer protection and how best to wind down failing financial institutions. If a bipartisan agreement cannot be reached, however, Republicans may offer an alternative to the Democratic plan, aides to Sen. Richard Shelby, R-Ala., hinted Monday.

Speaking ahead of Monday’s vote, Shelby, who is helping lead GOP negotiations on the finance bill, told an audience of community bankers he believed “that 41 Republicans right now are going to stand together.” The key is for the party to remain united, he said, for the sake of “more negotiating power and more clout.”

GOP opposition to the measure could be a political gamble, though, according to a new Washington Post-ABC News poll finding roughly two-thirds of Americans favor stricter rules for banks and other financial institutions.

As the Brookings Institution’s Douglas Elliott reminds, the public remains fiercely opposed to bankers:

“They hate bankers with a passion. So there’s a villain directly attached to the opposition to the bill, so it’s a dangerous thing for the Republicans or anyone else to line up against the bill because they can be easily portrayed as being for the bankers which is politically death right now.”

Under one version of the plan, banks would be required to spin off their derivatives businesses into separate subsidiaries with their own sources of capital. The measure’s language was crafted by Sen. Blanche Lincoln, D-Ark., and has already won support from two key Republicans: Iowa’s Charles Grassley and Maine’s Olympia Snowe.