Democrats on Tuesday stripped out a controversial $17.9 billion tax from their landmark financial reform bill in a scramble to win the votes needed to pass it through Congress.
Democrats hoped the change would draw enough moderate Republicans to allow them to quickly pass the sweeping overhaul through both chambers of Congress. The goal had been to get the bill to President Barack Obama's desk by July 4, but that timetable could slip by several weeks.
Though a supposedly final version of the bill had been hammered out last week, Democrats called a fresh negotiating session on Tuesday after support appeared to be waning.
Heeding the concerns of moderate Senate Republicans, they axed the $17.9 billion tax on large financial institutions that was added to cover the bill's costs on Friday in an all-night bargaining session.
Their new plan would cover most of the bill's costs by tapping $11 billion from a fund set up to bail out troubled banks. It also would raise the amount that larger banks must pay to insure their customer's deposits.
I'm prepared to make some compromises to get this very important bill through, said Democratic Representative Barney Frank, who has overseen the process.
Banks could have easily covered the costs of the new tax by trimming their executive bonuses, Frank said.
The Obama administration supports the change, a White House official said.
Leaders in the House of Representatives set the stage for a quick vote on Wednesday, but it was unclear if the Senate could schedule their vote by the end of the week.
Democratic plans for quick passage were complicated by the death of Democratic Senator Robert Byrd. His absence leaves them one vote short of the 60 needed to clear a Republican procedural hurdle in the 100-seat chamber.
Furthermore, Byrd's body was scheduled to lie in state on the Senate floor on Thursday, delaying any legislative action.
Democrat Christopher Dodd, who is leading the effort in the Senate, told reporters that he was doubtful the chamber could approve the bill by the end of the week.
Obama then would not be able to sign the bill into law until the middle of July, as Congress is out of session next week following the Independence Day holiday.
Analysts were confident the bill would become law.
Not a question of if, but when, Concept Capital analyst Chris Krueger said in an e-mail.
The bill, which aims to prevent a repeat of the 2007-2009 financial crisis that shook the global economy, is a top priority for Obama and would give him and fellow Democrats a big legislative win ahead of November congressional elections.
RETIRING TARP EARLY
The bill would force banks to reduce, but not cease, risky trading and investing, set up a new government process for liquidating troubled financial firms and establish a new consumer-protection bureau. It would saddle financial firms with a host of new regulations and reduce their profits.
Wall Street and many Republicans have tried to delay or water down the bill, but it has grown stronger during its yearlong journey though Congress as Democrats have ridden a wave of public disgust at an industry that has awarded itself fat paydays while the rest of the country struggles with high unemployment.
A handful of moderate Republican senators, mindful of the measure's popularity, managed to win concessions in return for helping the Democrats advance it, but several threatened to withdraw their support over the bank tax.
Those Republican senators -- Scott Brown, Susan Collins and Olympia Snowe -- worked out the new funding plan with Democrats, Frank said. He said he would not have bothered to change the bill unless the alterations would pick up the votes needed to pass the Senate.
Snowe and Collins are studying the final version and have yet to decide how to vote, aides said. A Brown aide declined to comment.
The new funding mechanism would shut down the politically unpopular Troubled Asset Relief Program, which was set up in 2008 to buy toxic assets from banks but was instead used to bail out teetering Wall Street giants and Detroit automakers.
Some $11 billion from the TARP fund would help to pay for the bill. Republicans said that would effectively mean that the government's debt would rise by $11 billion.
This is fraud on the American taxpayer, that's clear and simple, Republican Senator Judd Gregg said.
Democrats countered that they had to turn to the new funding source only because Republicans had forced them to drop their original proposal, a fund of at least $50 billion that would have been raised from the financial industry.
The bill would actually reduce the deficit by $3.2 billion by shutting down TARP early, an administration official said.
The bill would raise another $5.7 billion by bumping up the fees that banks pay to the Federal Deposit Insurance Corp.
The increase in fees would build up the insurance fund's reserve ratio to 1.35 percent from 1.15 percent. The ratio measures how much the FDIC has on hand in its insurance fund, compared to insured deposits.
(Additional reporting by Rachelle Younglai, David Morgan and Alister Bull in Washington and Joe Rauch in Charlotte; writing by Andy Sullivan; editing by Anthony Boadle)