By Kevin Drawbaugh and Andy Sullivan
WASHINGTON (Reuters) - Senate Republicans blocked progress on Democrats' sweeping financial reform for a third day on Wednesday, although the distance between the two sides was not huge and a bill is eventually expected to pass.
Republicans pressed for a compromise measure, seeking concessions such as protecting car dealers from the reach of a proposed new consumer protection watchdog. They say the reform is needed but simply overreaches.
With congressional elections set for November, lawmakers from both parties are keen to pass a bill, the most ambitious rewrite of Wall Street rules since the 1930s.
Financial markets are watching the battle for signs of how strong the crackdown on banking and dealing practices will be, and what that may mean for banks' capital and valuations.
The Republicans floated their first written counterproposal on Tuesday. Analysts described it as "extremely similar" to the Democratic bill, which has been under development for months in response to the 2008-2009 financial crisis.
Worried about losses in this year's elections, Democrats are keen to take advantage of widespread anger at Wall Street, perhaps the only address more unpopular than Capitol Hill.
Senate Banking Committee Chairman Christopher Dodd told reporters on Wednesday that his 1,558-page bill would not impinge on the ability of small businesses such as auto dealers and dentists to offer installment payment plans.
But an aide said companies that profited from such loans could have to answer to the new consumer watchdog.
Dodd told Reuters after the vote that no decision has been made on the status of a $50-billion fund proposed by Democrats to help pay for dismantling big financial firms in distress. Republicans have demanded that the fund be dropped.
"I have people all over the lot on that issue," Dodd said. "There is no decision on anything yet."
The Democratic bill would create an "orderly liquidation" process for unwinding large firms, aiming to prevent more taxpayer bailouts like 2008's rescue of AIG and the shock bankruptcy of Lehman Brothers.
GOLDMAN CEO UNDER SCRUTINY
One day after he endured a marathon grilling by a Senate panel, Goldman Sachs Inc chief executive Lloyd Blankfein said he had not thought about resigning amid accusations the firm helped inflate the housing bubble and then made billions off the market's collapse.
Democrats hope a government fraud case against Goldman will help reforms pass. Republicans seized on Blankfein's apparent support of the rewrite to bolster their case against it.
"The most conspicuous supporter of this bill is the chairman of Goldman Sachs," Senate Majority Leader Mitch McConnell said on the Senate floor.
Republican Senator Richard Shelby said on Tuesday that Democrats had incorporated some Republican ideas in the bill, but did not specify which ones. A proposed consumer-protection agency remains the biggest stumbling block, he said.
The Democratic bill would also impose regulations on the unpoliced $450-trillion over-the-counter derivatives markets, curb risky trading by banks, force hedge funds to register with the government and crack down on debt securitization.
Any bill that passes the Senate would have to be reconciled with a version that cleared the House of Representatives in December. Analysts say that could happen by mid-year.
The Republican counterproposal, obtained by Reuters, is the first time the minority party in the Senate has set down its goals on paper during months of closed-door negotiations. It would set up a consumer-protection council, rather than the consumer-protection bureau envisioned by Democrats.
SHORTER LEASH ON FED
Republicans also want to restrict the Federal Reserve's emergency-lending authority more than Democrats, while allowing national bank regulators to continue to preempt state laws.
In votes on Monday and Tuesday, Democrats fell short of the 60 votes needed to advance bills in the 100-seat chamber.
Republicans say it will be easier to change the bill to their liking before it is brought up for debate, where Democrats only need 50 votes to defeat their proposal.
Democrats control 59 seats, one short of the number needed to overcome procedural hurdles.
"Once this bill does get to the floor, we all recognize that it will be very, very difficult to change it," said Republican Senator Mike Johanns.
(Additional reporting by Tabassum Zakaria, Thomas Ferraro; editing by Patrick Graham)
