Wall Street reform odyssey begins in Senate

WASHINGTON (CNNMoney.com) -- The Senate began work Thursday on a bill that aims to prevent the next financial crisis.

But don't expect a final vote on a bill anytime soon.

Lawmakers started making opening speeches Thursday, talking in general about the bill. They're not expected to start debating the details of possible changes to the bill until next Tuesday.

The amendment process and debate could take several weeks, since Republicans and some Democrats have deep reservations about parts of the bill and plan to offer changes rewriting it. Republicans have the ability to filibuster amendments, and they can also filibuster the final vote on the bill.

"I hope we end up with a good bill, and that we end up repairing the tensions and stress that exists in this legislative body," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee. He vowed to give all potential changes time to be debated on the floor.

The Senate was delayed in taking up the bill earlier this week when Republicans blocked efforts to move forward three times in less than 48 hours. On Wednesday night, Senate Minority Leader Mitch McConnell, R-Ky., agreed to begin debating without opposition, as it became clear several Republicans were ready to join Democrats in starting the debate.

The Republicans said they wanted to complete negotiations on a compromise between Dodd and the Senate panel's ranking member, Sen. Richard Shelby, R-Ala. But Shelby said Wednesday that there was an impasse in the talks, and that led his party to end its resistance to the debate.

The House passed a Wall Street reform bill last December. A final Senate bill, if passed, would trigger one of two options: either a conference with the House to reconcile differences and come up with a single measure that must pass both chambers, or the House could agree to vote on the Senate bill.

The biggest changes expected next week are in the part of the bill that would prevent financial firms from getting too big to fail.

A proposed $50 billion pot to be tapped when regulators unwind failing financial institutions, currently in the Dodd bill, is expected to be stripped out, according to a congressional aide. Republicans have said the fund could be considered a bailout, because it signaled implicit government intervention.

The bill is also expected to be changed to specifically say that shareholders of failing financial firms up for government-run unwinding will be wiped out.

The Federal Reserve's emergency lender-of-last-resort powers are expected to be narrowed, so that such loans are available in real emergencies only to help solvent firms in a liquidity crunch.

The bill currently allows the Fed to shrink a big Wall Street firm if two-thirds of a panel of regulators agrees. However, it fails to grant federal regulators strong new powers to break up banks, which has become a battle cry by economist Simon Johnson and other lawmakers.

Sen. Bernard Sanders, an independent from Vermont who caucuses with Democrats, will offer an amendment to break up banks that are too big. In addition, Sen. Edward Kaufman, D-Del., and Sen. Sherrod Brown, D-Ohio, have filed an amendment that caps bank size.

"If we're going to prevent big banks from putting our entire economy at risk, we need to place sensible size limits on our nation's behemoth banks," Brown said in a statement.

The top obstacle between Democrats and Republicans remains how much power and scope to give a proposed consumer financial product regulator.

This new presidentially appointed regulator would be tasked with creating new rules for credit cards, mortgages and auto loans, and enforcing those rules on the largest banks. Smaller banks could keep their regulator when it comes to enforcement.

Democrats propose sticking the consumer regulator inside the Fed, but they also want to make sure the regulator has strong powers, such as banning penalties imposed on homeowners who pay off mortgages early.

The bill also would regulate auto loans, which may impact some auto dealers if they offer financing packages for the cars they sell. Lawmakers are expected to propose an amendment stripping auto loans from new regulations, just as the House does. That will be a contentious fight in the Senate.

Republicans say the consumer regulating powers are too broad and they want existing regulators to have more of a say on the rules.

Other sticking points involve regulating bets on complex financial contracts known as derivatives. Lawmakers want to make them more transparent, pushing them onto clearinghouses and exchanges. They also want those making bets to post collateral, backing up the deals.

But Democrats also want to force banks to spin off their swaps desk, or the parts that deal in making such risky bets.

Republicans think the Democrats' crackdown on derivatives goes too far, harming businesses, such as airlines and farmers, who benefit from making such bets to shed the risk of swings in prices and interest rates. They also say it will push the financial industry to make trades overseas.