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Financial bill in limbo going into key vote

Shelby, soft-spoken and stoic, appeared willing to hold out in hopes of winning concessions on elements of the bill. "This is a very complicated piece of legislation," he said. "It's very tedious. . . . I think we're closer than we've ever been. Will we get a bill by tomorrow? I doubt it."

Both men repeated assurances that "we're getting there," saying their staffs were continuing to work out details. But it was unclear how far they remained from the finish line. Asked whether the remaining differences represented a matter of inches, Shelby said, "Inches sometimes are miles."

Dodd's 1,400-page bill, which recently passed the banking committee on a party-line vote, would, among other things, create a bureau housed within the Federal Reserve to protect consumers against abuses in mortgages and other loans. It would also set up a council of regulators to monitor for risks to the financial system, establish oversight of the vast derivatives market and give the government power to wind down large, troubled financial firms.

Republicans have recently focused most of their criticism on a proposed $50 billion "resolution fund" that would help cover the costs of dealing with a major financial firm's failure. Although the financial industry would pay for the fund, Republicans have argued that it would allow regulators to treat creditors of failing firms unevenly and could leave the door open to bailouts.

The two parties must find common ground over the "Volcker rule," a proposal that would ban Wall Street banks from engaging in certain investment activities, such as owning hedge funds. They also have lingering disagreements about the details of the proposed consumer regulator.

Republicans have also objected to measures that would roll back the doctrine of preemption, which allows big banks to answer solely to federal regulators. Dodd and the Obama administration want states to have the authority to press beyond federal laws, arguing that preemption has prevented state regulators from quelling obvious abuses.

The Senate banking and agriculture committees have passed legislation that would impose new rules on the market for financial derivatives -- contracts that allow financial traders to bet on the direction of stocks, commodities and other assets.

Staff members of both committees worked with administration officials through the weekend to harmonize the two bills, and people familiar with the talks said the larger overhaul package would include most provisions put forth by the agriculture committee and its chairman, Blanche Lincoln (D-Ark.).

"Basically, it will be the base language" for derivatives oversight in Dodd's bill, a source familiar with the negotiations said Sunday, adding that the legislation would include "the majority" of the provisions passed by the agriculture committee.

That is significant, because Lincoln's bill could dramatically reshape several critical markets and deprive large financial firms of a major source of revenue. The source said a controversial provision to ban big Wall Street banks from trading in derivatives would remain, despite initial objections from administration officials.

Democrats view the effort to bring transparency and accountability to the $600 trillion derivatives market as an area in which they might gain Republican votes for the overall legislation.

Sen. Olympia J. Snowe (R-Maine) joined Democratic colleagues last week in calling for "comprehensive, strong derivatives reform," and one Republican, Sen. Charles E. Grassley (Iowa), voted in favor of advancing the derivatives legislation out of the agriculture committee last week. That underscores the challenge GOP leaders face in trying to keep all 41 Republican senators united against Dodd's bill as they try to shape key provisions.

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