WASHINGTON — Republicans offered a weaker alternative to consumer protection measures that are central to President Barack Obama's Wall Street regulation plan, opening a new front Wednesday in the Senate debate over how to rein in financial institutions.
The Senate pivoted straight into that confrontation after reaching a compromise on how to dismantle large failing firms. In that agreement, senators voted 93-5 to eliminate a contentious $50 billion fund that would have been used to pay for a firm's liquidation. They also voted 96-1 to protect taxpayers from losses. But the government would still have to put money up front to cover the costs of a firm's orderly dissolution. That money would be recovered through the sale of the failed firm's assets and by forcing shareholders and creditors to take substantial losses.
"While we have had our differences in other areas, we have always shared a commitment to ensuring that taxpayers will never again be forced to bail out giant Wall Street firms that fail," Senate Banking Committee Chairman Chris Dodd, D-Conn., said of his agreement with the committee's top Republican, Sen. Richard Shelby of Alabama.
But the quick succession of votes belied the remaining partisan disputes, including the divide over consumer protections. The Republican plan would limit the enforcement power of a proposed consumer protection bureau and make its rules subject to approval by a top banking regulator.
The White House was quick to object. Spokeswoman Amy Brundage called the Republican proposal "nothing more than a lobbyist-influenced defense of the status quo and an attempt to water down the consumer protections" in the bill.
The GOP plan would create a division of consumer protection within the Federal Deposit Insurance Corp. to oversee nonbank mortgage companies and write consumer regulations. The FDIC would sign off on those rules.
In contrast, the Democratic plan backed by the Obama administration would create an independent bureau within the Federal Reserve to police lending and other customer financial service transactions with a freer hand to enforce regulations.
Creating a new consumer financial protection entity is a central piece of the Obama administration's regulatory package. Obama has said he would veto legislation with feeble consumer protections. The consumer measure is but one hurdle for the legislation and the endgame for the bill was far from clear.
"The Republicans have stopped us from doing anything on this bill," Senate Majority Leader Harry Reid, D-Nev., said Wednesday, before the Senate's votes. Reid has said wants a complete the bill by next week.
Sen. Richard Shelby of Alabama, who offered the Republicans' consumer protection alternative, said it is complex and senators need time to debate it.