Senate Republicans on Tuesday blocked a sweeping overhaul of banking rules for a second straight day as they sought to extract more concessions from Democrats eager to crack down on Wall Street.

As Goldman Sachs executives sweated through tough questioning by a Senate panel, Democrats calculated that Republican resistance to the bill would crumble amid election-year pressures and widespread anger at Wall Street.

But they again fell short of the 60 votes needed to begin debate on the bill, which would effectively ban banks from several lucrative types of trading and subject them to greater oversight.

As on Monday, no Republicans sided with Democrats in the 57-41 vote. Key moderate Republicans said they had seen no developments to change their minds over the past 24 hours, and felt no pressure from voters to switch their position.

I think people trust me to make the right decision, said Republican Senator Olympia Snowe.

Another vote is expected on Wednesday as Democrats try to cast Republicans as allies of a greedy Wall Street, perhaps the only address more unpopular with the public than Capitol Hill.

Lawmakers from both parties are eager to tighten oversight of the financial industry before the November congressional elections and many expect a bill will eventually pass.

At the end of the day, I think this is political dynamite. Republicans have lit the match and they have time to put it out before it explodes, said Democratic Senator Robert Menendez.

President Barack Obama and his fellow Democrats want tighter rules to prevent a repeat of the 2008-2009 financial crisis, which punished the economy with a deep recession.

The 1,558-page Senate bill would set up a new orderly liquidation process for dismantling large financial firms in distress and create a new financial consumer protection watchdog.

It would impose regulations on the over-the-counter derivatives markets, curb risky trading by banks, force hedge funds to register with the government and crack down on debt securitization. Republicans see a need for reform, but say the Democrats' bill reaches too far. They object to the derivatives regulation and a $50 billion liquidation fund.

The House of Representatives approved a bill in December that embraced many reform proposals made in mid-2009 by Obama. Anything the Senate produces would have to be merged with the House bill. Analysts have said that could happen by mid-year.


As party leaders blasted each other in news conferences and e-mail releases, the top Democrat and Republican on the Senate Banking Committee huddled to work out a compromise that could enable the bill to come up for debate.

Republican Richard Shelby said he and Democrat Christopher Dodd were near agreement on the language that would govern how troubled firms could be shut down. But he said they remained far apart on consumer-protection measures.

It would be so sweeping in scope and breadth it would reach into everything our economy is about, Shelby said of the Democrats' consumer protection plans.

Dodd said widespread abuses in the mortgage market had proven the need for tough consumer protection.

I find it rather startling that in this day and age they're objecting to the idea that the American consumer ought to be protected, he told reporters.

The two had met earlier in the day and were expected to meet again after the afternoon vote.

Other issues are in play as well.

Snowe said she was heartened that the Democrats had kept tough language to police the $450 trillion derivatives market in their bill, but said she wanted to ensure small businesses would not be hurt.

Nebraska Senator Ben Nelson, the lone Democrat to join Republicans in opposing the bill, said he opposed a measure that would force companies to hold collateral against existing derivatives contracts -- a key concern of financial titan Berkshire Hathaway Inc, which his headquartered in his state.

Financial markets see the debate on U.S. regulation as crucial to how banks will be valued in the future, how much they may have to raise their capital and how much risk investors will be able to put on the table.

Stock markets fell worldwide earlier this month on signs of a crackdown on financial firms like Goldman Sachs. Markets were preoccupied on Tuesday with debt troubles in Europe, putting aside the regulation battle.

(Additional reporting by Rachelle Younglai and Thomas Ferraro; Editing by Dan Grebler)