The Senate opened debate on Wall Street reform on Thursday with an amendment to bar use of taxpayer funds in any future government actions to dismantle financial mega-firms that get into trouble.
Seeking to start off on a bipartisan note in a debate expected to last two weeks or more, Democrats said the amendment from Senator Barbara Boxer would ensure taxpayers do not again come to the rescue of too big to fail firms.
More than 100 amendments were circulating by midday in the Senate, although no votes were expected until Tuesday.
President Barack Obama has pushed for a broad rewrite of financial rules, arguing one was needed to prevent a repeat of the financial crisis that pushed the U.S. economy into its deepest recession since the Great Depression.
Senate Republicans had successfully blocked the Democrats' bill for three straight days as they sought concessions, but agreed on Wednesday to begin debate on the most sweeping financial reforms since the 1930s.
As outlined by Democrats, the legislation calls for toughening rules for the $450-trillion over-the-counter derivatives market, potentially forcing banks to spin off their lucrative swaps trading desks.
That could hurt firms like Goldman Sachs and others that dominate that market. Analysts said the lengthy debate will weigh on bank stocks for weeks.
We continue to believe that the proposed regulatory changes would have a significant impact on global investment banks' returns on equity, said Kian Abouhossein, analyst at investment firm JPMorgan Chase & Co.
A reform bill is expected to pass eventually, but first Democrats will offer amendments to harden it, while Republicans will seek to attach language to weaken it.
HOUSE BILL ALREADY APPROVED
Any bill that passes the Senate would have to be merged with a version that cleared the House of Representatives in December. Analysts say that could happen by late May.
Unlike the months of Senate deal-making behind closed doors that led to this point, the floor debate will be out in the open, an important shift in the tactical dynamic.
Republican leverage over this legislation has diminished, said Paul Miller, analyst at FBR Capital Markets.
However, further procedural hurdles remain, both in passing individual amendments and later when the Democrats seek to end debate and pass the bill.
Democrats control 59 votes in the 100-member Senate, one shy of the 60 needed to overcome any filibuster that can block action.
Republicans could deploy this weapon during the debate, but so could Democrats. Senate leaders may agree to limit use of the maneuver.
Because Democrats need 60 votes to end debate, Republicans retain significant clout and we believe Democrats will be forced to compromise to get legislation enacted, said Jaret Seiberg, analyst at Concept Capital.
Republicans said they won a handful of concessions in exchange for their retreat from the three-day stand-off, but the details on that were not entirely clear.
DEMOCRATIC CONCESSIONS SEEN
A Republican aide said Democrats made six concessions as part of the agreement to proceed to debate. One was to drop a proposal to set up a $50 billion fund to help pay for dismantling large financial firms that are in distress, the aide said.
We believe the $50 billion fund is now out of the bill, Seiberg said in a research note.
The fund is part of the Democrats' proposal for an orderly liquidation process to unwind troubled firms, aiming to prevent more bailouts like the 2008 rescue of AIG and the shock bankruptcy of Lehman Brothers.
Boxer's amendment would fund this process by selling off the firm's assets when the process is through, or by levying an assessment on other financial firms.
Republicans are also expected to try to exempt auto dealers from the full reach of the Democrats' proposed new financial consumer watchdog. Auto dealers are already exempt under the House bill.
The clout and independence of the consumer watchdog -- designed to regulate credit cards and mortgages -- is expected to come under fire from Republicans who say it goes too far. Some Democrats say it doesn't go far enough.
(Additional reporting by Andy Sullivan, Thomas Ferraro; Editing by Andrew Hay)