Democrats on Tuesday planned to strip out a controversial tax from their landmark financial reform bill in order to win the swing votes needed to pass it through Congress.
With crucial Republican moderates threatening to withdraw their support, Democrats were weighing alternative ways to fund the most sweeping rewrite of the Wall Street rulebook since the 1930s.
Though a supposedly final version of the bill had been hammered out last week, Democrats in charge of the process called a fresh negotiating session, which got under way shortly after 5 p.m. EDT.
Democratic lawmakers and aides said they planned to remove a $17.9 billion tax on large financial institutions. Instead, they would cover most of the bill's costs by shutting down a $700 billion bank-bailout program.
I haven't talked to everybody, but I gather from a number of people they like this option, said Democratic Senator Christopher Dodd, one of the lawmakers in charge of the bill.
The bill had been expected to pass both chambers of Congress this week in time for President Barack Obama to sign it into law by July 4. But supporters have been forced to scramble for votes in the Senate, putting that goal in jeopardy.
Analysts said while that timetable may slip, the bill was still likely to become law.
We believe that this legislation will pass, timing and the bank tax remain the final question marks, wrote FBR Capital Markets analyst Edward Mills in a research note.
Democratic aides said it was still possible to pass the bill out of Congress by the end of the week.
Democrats are now two votes short of the 60 needed to clear a Republican procedural hurdle in the Senate. Democratic Senator Robert Byrd died on Monday, depriving his party of a needed vote, and Republican Senator Scott Brown said on Tuesday he would withdraw his support unless Democrats strip out a $17.9 billion tax that would apply to large financial institutions.
The tax was added to cover the costs of the bill during a final all-night negotiating session last week.
It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis, Brown wrote in a letter to the Democrats who are handling the bill.
Other moderate Republican senators who previously supported the bill have also expressed reservations over the new tax.
One of those Republicans, Senator Susan Collins of Maine, told reporters she was working with Dodd to get away from the tax and they were making progress.
The bill is not perfect. But I believe if you take out the new bank tax that, on balance, it would improve our financial system and I would support it, she told reporters.
LOOKING FOR MONEY
The plan under consideration would shut down the $700 billion Troubled Asset Relief Program, which was set up in 2008 to buy up toxic assets from banks but was quickly used to bail out teetering Wall Street giants instead.
It has since been tapped to save Detroit automakers, and Democrats considered using it to spur job creation earlier this year.
Shutting it down before it expires in October could please Republicans who have fought its expansion. It also would raise $11 billion to defray the bill's costs, Dodd said.
The shutdown would not affect companies like General Motors that currently rely on the money, a Democratic aide said.
One memo being circulated on Tuesday showed Dodd was also considering a proposal to raise the Federal Deposit Insurance Corp premium ratio to 1.35.
Currently the FDIC by law must maintain the insurance fund at 1.15 percent of banks' covered deposits. The increase in the premium ratio would result in a rate hike on banks.
If negotiators agree on a solution, the House could vote on the measure on Wednesday. That conceivably could give the Senate enough time to approve it and send it to Obama by July 4.
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.
We continue to work with Congress to find all possible paths to ensuring Wall Street reform is enacted as soon as possible, an Obama administration official said.
The legislation 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.
Bank stocks fell sharply when the market opened on Tuesday and closed down 4.4 percent, a sharper drop than markets as a whole. The reform bill, instability in Europe and fears of weaker-than-expected earnings were pushing prices lower, analysts said.