WASHINGTON — Republicans abandoned their blockade against legislation to clamp tough new controls on Wall Street yesterday, clearing a road to likely passage for the most sweeping rewrite of financial rules since the Great Depression.
Democrats and Republicans agree the Senate will ultimately pass landmark changes aimed at preventing a recurrence of the crisis that knocked the nation's financial system to its knees in 2008, but the battle now begins over crucial details. The House has already passed its version.
Democrats said the Republicans had given in after three days of votes to block debate, realizing they were on the losing end of a battle for public opinion. GOP lawmakers said they would now switch to trying to change the bill on the Senate floor.
Sen. Sheldon Whitehouse, D-R.I., said, "There's been immense pressure bottled up inside the Republican caucus through these last three votes. A lot of their members have been very deeply unhappy with the direction their leadership has been taking them. Better heads prevailed."
Democrats had threatened to hold the Senate in session all night making their case that the Republicans were stalling legislation of importance to virtually every American. The Democrats also have been laying plans to make the legislation a major issue in midterm elections this summer and fall. The Republican retreat came one day after senior executives of Wall Street giant Goldman Sachs were denounced by lawmakers from both parties at a marathon Senate hearing.
In the debate that now can proceed, both Democrats and Republicans will attempt to change the underlying bill. Republicans will take particular aim at the magnitude of consumer-protection provisions that President Barack Obama says are vital. Liberal Democrats are expected to seek to limit the size of banks.
The GOP decision to relent came after Sen. Richard Shelby, the top Republican on the Senate Banking committee, told his colleagues that he could win no further concessions from Banking Committee chairman Christopher Dodd in private talks. He said Dodd did agree to adjust some provisions that Republicans had complained would permit further bank bailouts.
But there were already signs that some Republicans were growing weary of continuing to block the bill after President Barack Obama and other Democrats accused them of siding with Wall Street, an institution that rivals Congress in its unpopularity.
"The point of all of this was to make sure that as long as those discussions could bear results that we would support that effort," Republican Sen. Olympia Snowe of Maine said of her party's objections. "Now we proceed to the floor for amendments on the remainder of the bill."
Obama, winding up a Midwest tour promoting the legislation, said he was pleased the debate would proceed.
"The time for reform is now," the president said.
"It is not just Republicans who are going to offer amendments," said Sen. Bob Corker, a Tennessee Republican who negotiated with Dodd on portions of the bill. "This may be a real debate, which would shock America."
How the debate unfolds will determine whether the legislation achieves significant bipartisan support. Democrats still need 60 votes to get past procedural obstacles, a number they can't reach without at least one Republican on their side.
The bill would establish a nine-member Financial Services Oversight Council, including the treasury secretary, Federal Reserve chairman and the heads of regulatory agencies to monitor markets for threats, such as the bubble in housing prices and mortgage-backed securities that preceded the financial near-collapse two years ago.
The Federal Reserve would begin policing large bank holding companies and interconnected nonbank institutions whose collapse might pose a threat to the economy.
With approval of the council, the Fed could even break up complex companies that posed a grave threat.
Most investment derivatives — such as the hundreds of billions of dollars in complex instruments blamed for accelerating the crisis two years ago — would have to be traded on regulated exchanges.
Sen. Richard Shelby, the top Republican on the Banking Committee, said Wednesday he had received assurances that Democrats would adjust the bill to address GOP concerns that it would perpetuate bailouts of banks. But he said he and Dodd had given up finding common ground on other provisions, including Dodd's consumer protection language that Republicans say goes too far.
"Now that those bipartisan negotiations have ended, it is my hope that the majority's avowed interest in improving this legislation on the Senate floor is genuine and the partisan gamesmanship is over," said Senate Republican leader Mitch McConnell.
Dodd said his talks with Shelby had been productive. "But I cannot agree to his desire to weaken consumer protections given the enormous abuses we have seen."
Republicans said they now expect Democrats to jettison a $50 billion fund that would have been financed by banks to help liquidate large failing institutions. The Republicans said they also expect Democrats to tighten language so the bill would mandate that shareholders' stakes in a failing firm be wiped out. The current bill says there would be that presumption.
Democrats tried three times to begin debate on the bill only to be thwarted by Republican opposition. Democrats branded the Republicans as Wall Street allies. But Republicans said they were merely trying to secure changes to make the bill more bipartisan.
Republicans have begun to focus their criticism on the consumer protection provision.
The Senate Democrats' bill would create a Consumer Financial Protection Bureau within the Federal Reserve that would have power to police transactions between institutions that provide financial services and their customers.
Republicans say the bill would have unintended circumstances that could ensnare small business people for merely extending credit to their customers.
By a 56-42 vote yesterday, Democrats failed for a third time to get the necessary 60 votes to move the legislation to the Senate floor for debate. Democrats had threatened to keep the Senate in session into the night and were preparing to hold more votes testing Republican unity.