The Senate will pass a sweeping reform of financial regulation on Thursday night, said an aide to Senate Democratic Leader Harry Reid, capping months of wrangling over the biggest overhaul of financial rules since the 1930s.

We're passing this bill tonight, Reid spokesman Jim Manley told reporters in the Capitol.

The Senate moved to wrap up debate on the bill earlier on Thursday, a key procedural hurdle paving the way for a vote. The bill now needs only a simple majority to win final approval.

The legislation is one of President Barack Obama's top domestic priorities and, if passed, it promises to increase restrictions on the banking industry and reduce its profits.

If the Senate bill is approved, it will have to be merged with a bill approved in December by the House of Representatives. Only then could a final package go to Obama to be signed into law, something that analysts say may happen next month.

Obama and congressional Democrats want to overhaul financial regulation to avoid a repeat of the 2007-2009 banking and capital market crisis, which tipped the U.S. economy into a deep recession, triggered huge taxpayer bailouts, and unleashed a wave of reform initiatives around the world.

The Senate voted 60 to 40 to wrap up debate on the bill earlier on Thursday. Obama said the final version will hold financial firms accountable but not stifle the free market.

This is not a zero-sum game where Wall Street loses and Main Street gains, Obama told reporters.

Last-minute maneuvering on the Senate floor looked likely to kill two controversial amendments: one to tighten proposed restrictions on risky trading by banks, and another exempting car dealers that do not finance their own lending to auto buyers from oversight by a new federal consumer watchdog.

There was a chance neither amendment would come up for a vote before the vote on approval, said Democratic Senator Jeff Merkley in floor debate.

I hope I'm wrong, said Merkley, co-sponsor of the measure that would tighten the proposed Volcker rule language in the bill on curbing proprietary trading by banks.


On Wall Street on Thursday, the Dow Jones industrial average slid 3.6 percent, hurt mostly by fears of Europe's debt crisis retarding a global economic recovery, but also by uncertainty over the outcome of the U.S. financial reform, traders said.

Barney Frank, Democratic head of a key House panel, told CNBC it is important to approve reform soon to ease uncertainty. He said Obama could sign a bill into law well before July 4.

Senators from both parties were eager to look tough on Wall Street ahead of elections in November, analysts said.

The Obama administration said it supports the amendment offered by Democrats Merkley and Carl Levin to tighten the Volcker rule, first proposed in January by Obama and White House economic adviser Paul Volcker.

The Merkley-Levin measure was tied procedurally to another measure from Republican Sam Brownback to exempt car dealers from the oversight of a new financial consumer watchdog.

Democratic aides said Republicans planned to withdraw the Brownback amendment so that a vote would not occur on Merkley-Levin, which is opposed by Wall Street firms.

The House bill already contains a watchdog exemption for auto dealers, opening the door to a deal in conference.

Bank lobbyists have worked for months to weaken the Senate bill. With approval near, they were refocusing on prospects for watering it down in a House-Senate conference after passage.

The president has to be very, very happy, Republican Bob Corker said after the vote. I know it has to be a major victory for him -- in my opinion it's an overreach.


Another dispute still unsettled was a provision in the bill from Democratic Senator Blanche Lincoln that would force banks to spin off lucrative swap trading desks into affiliates.

Major financial groups such as JPMorgan Chase, Bank of America and Goldman Sachs could be hit hard by such a requirement, analysts said.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, reiterated concerns that Lincoln's approach could increase, not decrease, risk. Analysts said they expect it will not be included in the final bill.

Lincoln, who faces a primary challenge from the left at home in Arkansas, said she would fight for her provision. But even if it survives the Senate, lawmakers could strip it out as they reconcile differences with the House.

Two Democrats who withheld their support for wrapping up debate on the bill on Wednesday did so again on Thursday.

Senator Russ Feingold, one of the chamber's most liberal members, has said the bill is not tough enough. Senator Maria Cantwell has pressed for tighter regulation of derivatives and breaking up the largest financial conglomerates.

Republican Scott Brown was the only lawmaker to switch his vote after meeting with Senate Democratic Leader Harry Reid early on Thursday.

In a statement, Brown said Reid had assured him that the final legislation will address his concern that the Volcker rule could hurt insurance companies and other firms that did not contribute to the financial crisis.

(Additional reporting by Karey Wutkowski, Thomas Ferraro, David Lawder and Patricia Zengerle; Editing by Leslie Adler)