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Sen. Christopher Dodd declares impasse in financial regulatory overhaul negotiations, but vows to press ahead anyway [Updated]

February 5, 2010 |  9:35 am

The Obama administration's attempts to enact the most sweeping overhaul of financial regulations since the Great Depression hit another obstacle Friday as Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said talks to craft a bipartisan bill had stalled and that he would draft his own bill.

“While I still hope that we will ultimately have a consensus package, it is time to move the process forward,” Dodd said. He has been in negotiations with the top Republican on the committee, Sen. Richard Shelby of Alabama, in hopes of drawing GOP support for the overhaul.

But the two have been sparring for weeks over a key provision of the Obama administration's plan -- creating a powerful new federal agency to protect consumers in the financial marketplace. Dodd said the talks were at an impasse but that Shelby assured him he is still "committed to finding a consensus."

[Updated at 11 a.m.: Shelby said he remained hopeful a bipartisan deal could be reached. But he  stressed his opposition to moving consumer protection oversight of banks to a new agency, which would separate it from regulators monitoring the banks for overall "safety and soundness."

“I fully support enhancing both consumer protection and safety and soundness regulation," he said. "I will not support a bill that enhances one at the expense of the other, however." 

Shelby said he and Dodd also were at odds over how to give the government new power to dismantle large financial firms on the brink of collapse so that future bailouts would not be needed.]

Chrisdodd Obtaining some Republican support has been seen as crucial to getting the complex legislation through the Senate. That became more of an imperative after the victory of Scott Brown in the special Senate election in Massachusetts, which gives Republicans enough votes to block any Democratic bill.

President Obama has made a financial regulatory overhaul one of his top priorities. In December, the House passed a sweeping bill that includes creation of a Consumer Financial Protection Agency, along with broad new government authority to seize and dismantle large financial firms if their failure poses a major risk to the economy, and to preemptively break up such firms if they're deemed to be too large.

But the effort has stalled in the Senate.

Dodd released a lengthy draft bill in November that went further than the administration's proposal in some key areas, such as creating a new federal banking regulator to replace four existing agencies. That proposal, however, met strong Republican resistance, sending Dodd back to the drawing board.

He assigned bipartisan teams to work on key provisions of the bill in hopes of drawing Republican support. Dodd said he hopes to draw from progress those groups have made as he instructed his staff to start drafting a bill to present to the Banking Committee this month.

"Over the past two months we have had productive bipartisan negotiations in a number of areas, and I intend to incorporate many of those agreements in this new proposal,” he said.

But Dodd, who announced last month he would not seek reelection in the fall, has been stymied by strong opposition to the new agency by Wall Street. And he complained this week that the Obama administration further complicated his efforts by recently proposing tough new restrictions on the risks that could be taken by banks that have commercial deposits. Large banks oppose those as well.

-- Jim Puzzanghera

Photo: Sen. Chris Dodd. Credit: Kris Connor / Getty Images