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Talks continue as GOP senators block advance of financial overhaul bill

Undaunted by a Senate setback, Democrats appear confident they will be able to take advantage of anger at Wall Street and push through the most sweeping new financial controls since the Great Depression. AP's Jerry Bodlander reports. (April 26)

Shelby aides repeated previous criticisms of the Democratic legislation and said Republicans probably would introduce their own version of the bill.

"We have been drafting an alternative approach since the very beginning," said one staff member, who like others spoke on the condition of anonymity to discuss the situation more frankly. "It may come to the point where Republicans decide, 'Let's just put out specifically what we're for.' That decision hasn't been made yet."

Aides declined to talk in depth about how a Republican alternative bill would differ from the legislation sponsored by Dodd. But they said it almost certainly would include language to overhaul the government-sponsored entities Fannie Mae and Freddie Mac.

Staff members on the Senate banking and agriculture committees huddled through the weekend with Obama administration officials to merge competing measures aimed at reining in the $600 trillion derivatives market. Derivatives are private contracts that allow traders to bet on the direction of the prices of stocks, commodities and other assets. Many companies also use such deals to lock in prices for goods, such as oil, which often fluctuate in value.

Dodd and Sen. Blanche Lincoln (D-Ark.), who chair the respective committees, said late Monday that an agreement had been reached. Key provisions put forth by Lincoln's committee remained largely intact, including a measure that could force big Wall Street banks to spin off their derivatives operations.

The bill also aims to increase transparency by requiring nearly all derivative contracts be traded in public on exchanges and approved by a separate body called a clearinghouse. In addition, the measure imposes a "fiduciary duty" on dealers, like the one required of investment advisers, to look out for the best interests of clients such as municipalities and pension retirement funds.

The legislation provides exemptions for commercial businesses and manufacturers that use derivatives to hedge risk, such as an airline seeking certainty on fuel prices. But Dodd and Lincoln said the bill gives regulators the authority to close loopholes so financial firms cannot claim exemptions. The two senators said the measure also gives regulators "broad enforcement authority" to punish bad actors.

In the latest poll, support for federal regulations of derivatives draws an even split, with 43 percent supporting federal regulation of the derivatives market and 41 percent opposing. Nearly one in five -- 17 percent -- express no opinion on the complicated topic.

Staff writers Renae Merle and Ben Pershing and polling director Jon Cohen contributed to this report.

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