Senate Banking Committee Chairman Christopher Dodd, the top Democratic negotiator, said he will unveil his own bill on Monday, but without some Republican support its chances looked slim.
Talks largely broke down because of disagreements over the powers of a new consumer watchdog for financial products, though Senator Bob Corker, who was the leading Republican on the compromise talks, blamed the White House's push for healthcare reform.
Analysts said the breakdown imperils chances that Congress will pass reform legislation this year. Democrats, who hold only 59 seats in the Senate, will likely need 60 votes to move a bill forward.
Corker, who had defied some of his colleagues by working with Dodd, said the White House's efforts to push through sweeping healthcare reforms at the same time lawmakers were grappling with rewriting financial regulations derailed the talks.
There is no question that White House politics and health care have kept us from getting to the goal line. No question, Corker said at a news conference, where he mixed criticism of the White House with praise for Dodd.
But Democratic Senator Jack Reed said the impasse occurred 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, Reed said in a statement.
Dodd, in his own statement, said that progress had been made but a few outstanding issues remain, but did not go into detail.
CONSUMER AGENCY A HURDLE
Republicans had dug in against calls from Democrats for a stand-alone consumer protection agency that would make sure banks did not engage in abusive tactics on credit cards, mortgages and other instruments that were at the heart of the financial crisis.
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 to a bipartisan deal were in the areas of derivatives regulation and whether to give shareholders greater say in electing corporate officers.
Dodd, a Connecticut Democrat who is not running for reelection and who wants to complete sweeping reforms before leaving office, has been locked for weeks in intense negotiations with Corker.
Corker, a junior senator from Tennessee, broke with party ranks after Richard Shelby, the top Republican on the banking committee, failed to reach an agreement with Dodd.
The bid for more stringent consumer protection reflected the anger that many people feel at banks that helped trigger the crisis and that, after being bailed out, have resumed paying their officers huge bonuses.
Dodd said his goal is still to produce a consensus package but it is unclear if any Republicans will sign on.
We have reached a point where bringing the bill to the full committee is the best course of action to achieve that end, he said. Our talks will continue, and it is still our hope to come to agreement on a strong bill all of the Senate can be proud to support very soon.
Brian Gardner, an analyst for financial services research firm Keefe, Bruyette & Woods said in a research note on Thursday that he now thinks chances are less than 50/50 that Congress can complete work on a bill this year.
We do not think the banking bill is dead, Gardner said. However, we think the bill's prospects have dimmed.
MORE THAN A YEAR LATER, NOTHING CHANGED
Almost a year and a half since the peak of a financial crisis that tipped the U.S. economy into its deepest recession since the 1930s, U.S. financial regulation has changed little.
The House had approved a bill in December that would represent the most sweeping regulatory reforms since the 1930s. Anything the Senate might produce would have to be reconciled with that measure.
A set of draft reform proposals unveiled by Dodd in November was immediately rejected by Republicans, and Dodd's initial proposal has been watered down in recent weeks.
Corker said the bill Dodd will unveil on Monday will reflect some of the recent bipartisan compromises that their talks did manage to achieve.
Dodd said his panel would debate his bill the week of March 22.
Last week Dodd took to the Senate floor to outline his priorities for financial reform, which is one of the Obama administration's top domestic policy initiatives.
The Senate bill's top goal, Dodd said, will be ending too-big-to-fail bailouts, like the 2008 taxpayer-backed interventions to prop up financial giants such as American International Group Inc and Citigroup Inc.
(Writing by Glenn Somerville, editing by Leslie Adler)