Chances of a broad overhaul of U.S. financial regulation dimmed on Thursday after bipartisan Senate talks collapsed, jeopardizing a top Obama administration priority and boosting bank share prices.

Senate Banking Committee Chairman Christopher Dodd warned that time was running out to pass legislation this year. He said he would unveil his own bill on Monday and aim to get it to the Senate floor by Easter.

Some analysts now question whether Congress can complete work on reforms this year. Dodd, a Connecticut Democrat who is not seeking reelection in November, will likely have to pick up some Republican support to move a bill.

The real problem I am facing is the clock, Dodd said at a news conference. Earlier, Senator Bob Corker, a Republican who had tried to hammer out a compromise with Dodd, said a simultaneous White House push to get healthcare reform through Congress had thrown a wrench into their effort.

President Barack Obama had pressed for a rewrite of financial rules to prevent future crises of the type that pushed the U.S. economy through a severe recession, and other nations had looked to the United States for direction.

The blow to financial regulatory reform lengthens the list of White House priorities that are now in peril, including climate change legislation and healthcare reform.

Brian Gardner, an analyst for research firm Keefe, Bruyette & Woods, said chances were less than 50/50 that Congress would pass a bill this year.

We do not think the banking bill is dead, he said. However, we think the bill's prospects have dimmed.

The top Republican on the banking committee, Senator Richard Shelby of Alabama, said after Dodd's press conference that an agreement is still very possible, provided that rules keep U.S. financial markets competitive while protecting taxpayers.

Anything the Senate might produce would have to be reconciled with a measure already passed by the House of Representatives, but Democrats will likely need 60 votes in the Senate to move a bill forward. They hold only 59 seats.

Bank stocks rose following the news, and the S&P 500 index closed at a 17-month high. Financial stocks were helped by investor expectations that any new banking rules will be less severe than previously feared, lessening the risk that regulatory reform measures will hurt bank profits.

Dodd said he was setting out his own proposals in an effort to keep the process moving in a year cut short by congressional elections in November. He said his committee would begin considering the bill the week of March 22.

The bill that Dodd will unveil on Monday contains some elements negotiated with Corker, both senators emphasized, but key stumbling blocks remain, including how much authority to give to a new consumer financial protection agency.


Senate Majority Leader Harry Reid said he would try to expedite any proposals that Dodd manages to get out of his committee.

We have to make sure that everyone acknowledges that we can't have institutions that are too big to fail, Reid said. The financial crisis put a spotlight on firms whose failure could jeopardize the entire financial system, with the government spending hundreds of billions of dollars in taxpayer-funded bailouts to rescue big firms and preserve stability.

Reid said he plans for the full Senate to consider a bill before lawmakers take a break at the end of May.

The House of Representatives had approved its own bill in December that would bring the most sweeping regulatory reforms since the 1930s.

Others said Democrats appeared to hope that public anger at banks might persuade some Republicans to join in the effort to stiffen rules for banks and other financial firms.

We're still very optimistic that this can get done. I think that this will get done this year, White House spokesman Robert Gibbs said. If you're not supportive of those new rules, you're going to get a chance to explain that opposition to the American people.


Corker, who had defied some of his Republican colleagues by working with Dodd, laid part of the blame for the impasse on the White House.

There is no question that White House politics and health care have kept us from getting to the goal line, Corker said.

But Democratic Senator Jack Reed said talks came to a halt over the disagreements over content of the legislation.

The reality is there are important, fundamental differences between the two sides when it comes to protecting consumers and preventing the kind of excesses that led to the 2008 financial collapse, he said.

Republicans dug in against calls from Democrats for a stand-alone agency to protect consumers from abusive tactics on credit cards, mortgages and other financial instruments.

Republicans wanted banking regulators to take the lead in enforcing consumer rules, but Democrats argued that such a system would water down consumer protections.

Corker said he and Dodd had achieved bipartisan agreement that the rule-writing and enforcement functions of consumer protection would be separate. He said the main stumbling blocks were in the areas of derivatives regulation and whether to give shareholders greater say in electing corporate officers.

(Writing by Glenn Somerville, Editing by Leslie Adler)