On a 57-41 vote, Democrats fell short of the 60 votes they needed to begin debate, even losing one of their own. The vote dramatized how politicized the debate has become on an issue once thought to be a ripe for cross-party cooperation.
The legislation is intended to help prevent a repeat of the 2008 financial crisis, both the heavy speculation and lax supervision that led up to it, and the series of taxpayer-funded bailouts that followed it. The Senate bill would create rules allowing for the orderly shuttering of large, failed institutions as well as a new financial agency charged with looking out for consumers.
The standoff will put in play central elements in the legislation Republicans have resisted. They include: the scope of powers granted to a proposed consumer-watchdog agency; whether an overhaul of trading in sophisticated financial instruments known as derivatives would force Wall Street banks to spin-off their derivatives-trading operations; and how the government would fund the unwinding of a tottering financial giant such as American International Group Inc.
The temperature will rise Tuesday, when Goldman Sachs Chief Executive Lloyd Blankfein and other top Goldman executives will be grilled by the Senate Permanent Subcommittee on Investigations, which is examining the role of investment banks in the financial crisis. The committee released a raft of emails Monday designed to show, contrary to the firm's contention, that Goldman had a clear strategy of betting against the collapsing mortgage market.
On Wednesday, President Barack Obama will keep up the pressure with a speech in Quincy, Ill., urging action on the finance bill, which would represent the biggest reworking of financial regulation since the 1930s. Last week, the Senate appeared to be on a speedy track to finish the legislation amid some Republican disarray.
The tables appear to have turned, for now. Monday's outcome in the Senate marked the first time Republicans have successfully voted to stall action of a major legislative priority of the Obama White House.
Still, both sides are spoiling for a fight over the financial-overhaul bill. Democrats said they'll use the Monday vote to paint Republicans as doing the bidding of Wall Street, while regrouping to again bring the legislation to the Senate floor. Republicans said they'll now be better able to win concessions in discussions over the bill.
Before Monday's procedural vote, Democrats agreed to kill a provision from their bill concerning derivatives that would have helped Warren Buffett's Berkshire Hathaway Inc., Omaha, Neb., avoid a big financial hit. The initial provision was ; INSERTed at the request of Sen. Ben Nelson (D., Neb.). Mr. Nelson joined with Republicans in voting against Monday's procedural action, saying the impact of the legislation wasn't yet clear.
"There are more rumors about it ... than answers about it right now," Mr. Nelson said. Among his concerns are the impact on auto dealers and Main Street in general, he said. He didn't specifically address the Buffett provision.
The measure was pieced together over several months by Sen. Christopher Dodd, and is meant to ensure lawmakers won't again be called upon to rescue Wall Street. Amid the turmoil of 2008, Congress approved a $700 billion market bailout, which has become a potent symbol of government intervention in the markets.
GOP leaders said the vote was not just a show of strength, but an effort to bolster Alabama Sen. Richard Shelby, the senior Republican on the Senate Banking Committee. Mr. Shelby is negotiating with Democrats on a package of changes to the bill that Republicans hope will ensure wide support. "If we hang together on the floor," said Sen. Shelby, "we can create critical mass" for compromise.
The overhaul of derivatives, the complex financial products that were at the heart of the recent crisis, remains one of the most contentious elements of the legislation. Democrats want to force big banks to spin off their derivatives trading desks, a move opposed by the Treasury Department and the Federal Reserve, and many Republicans.
Mr. Shelby suggested he would look closely at a proposal for regulating derivatives hammered out Sunday by Sen. Dodd and Senate Agriculture Chairwoman Blanche Lincoln (D., Ark.). The idea of forcing banks to spin off derivatives trading is strongly opposed by many major banks, which earn billions of dollars yearly on such trading.
Sen. Judd Gregg (R., N.H.) denounced the proposal as "punitive language put in out of spite," and dismissed the idea as "pandering populism, which just simply dislikes anything that has to do with Wall Street."
Sens. Shelby and Dodd met before the vote, and vowed to continue efforts this week to piece together a compromise agreement. "Our goal is a good bill, a bill that works for the economy, that works for the American people," Sen. Shelby said. Sens. Shelby and Dodd still disagree on several points, congressional aides said. Sen. Shelby wants other banking regulators to play a role in the new consumer watchdog, a move opposed by Democrats who say that would dilute the proposed agency's authority.