WASHINGTON — All 41 Senate Republicans and one Democrat voted Monday evening against limiting debate on a massive financial regulatory reform bill, depriving the Democratic leadership of the 60 votes they needed to move forward with a vote by the full Senate.

The cloture vote failed 57 to 41, with Sen. Ben Nelson of Nebraska the only Democrat to vote with the Republicans. The vote came after a provision sought by Warren Buffett of Berkshire Hathaway, which would have ensured new capital requirements would not apply to existing derivatives contracts, was dropped from the bill. Berkshire Hathaway is headquartered in Omaha, Neb.

Ahead of the vote, Republican leadership contended that voting against cloture was a vote for “bipartisanship,” saying essentially that bipartisan negotiations should continue before the bill is considered by the full Senate. 

Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said his negotiations with committee chairman Sen. Christopher Dodd, D-Conn., may result in a final bill within the week. But Shelby said that delaying floor consideration of the bill now will ultimately make it stronger.

Speaking on the Senate floor, Minority Leader Mitch McConnell, R-Ky, said: “All of us want to deliver a reform that will tighten the screws on Wall Street. But we’re not going to be rushed on another massive bill.”

Prior of the vote, Democrats and the Obama administration had tried to ratchet up momentum for the bill, as the Senate Agriculture Committee approved sweeping new derivatives regulations last Wednesday before President Obama gave a high-profile speech in New York Thursday critiquing the financial industry while urging it to support reform.

Democrats said they reached an agreement over the weekend on how to merge the derivatives language in the Senate Agriculture bill with the that in the much larger legislation that cleared the Senate Banking Committee last month.

“Chairman Dodd and I have produced the strongest reforms to date and we must move forward to bring the necessary regulations to our nation’s financial system,” Sen. Blanche Lincoln, D-Ark., the chairman of the Agriculture Committee, said in a statement.

The merged language, which Democrats released tonight, includes a provision championed by Lincoln to impose a fiduciary duty on swap dealers who advise, pitch, or enter into derivatives contracts with states and localities.

The provision was panned by the industry and not included in the Senate Banking Committee bill, which would only have required that states and localities hire an independent swap adviser.

Democrats also agreed to amend the merged bill on the Senate floor to require bank holding companies to spin off derivatives-trading subsidiaries to be eligible for federal assistance, such as federal deposit insurance or the ability to borrow directly from the Federal Reserve.

The  massive financial regulatory reform bill is significant for the municipal market because it would for the first time subject non-dealer financial advisers and other market intermediaries to Securities and Exchange Commission registration and Municipal Securities Rulemaking Board rules.

Though a version of financial reform that cleared the House in December would give regulatory authority over FAs and other market intermediaries to the SEC, Senate Banking Committee Democrats favored the MSRB.

In a committee report on the bill issued last week, Democratic staff wrote that they believe the MSRB has greater muni market resources in terms of personnel and experience than the commission, as well as a comprehensive set of rules on key issues such a pay-to-play and fair dealing.

To address potential conflicts, the bill also would alter the composition of the MSRB to require that a majority of its 15 members are “public” individuals. The move is designed to bring the board’s composition in line with other self-regulatory organizations, though non-dealer FAs have said that they would prefer to be regulated by the SEC, which they see as more independent, or have parity on the board with dealers.

Currently, 10 of the 15 board seats are split evenly between securities and bank dealers.

Before yesterday’s vote, Democrats, pushing forward with a probe of allegations that Goldman Sachs & Co. contributed to the financial crisis by making and holding significant bets against the mortgage market, portrayed the Republicans as protectors of Wall Street bankers.

“We remain eager to work with Republicans who are sincere about reforming Wall Street, and we are hopeful for bipartisan agreement on this important effort,” said Senate Majority Leader Harry Reid, D-Nev. “But there are no two ways about it: a vote against even opening debate on holding Wall Street accountable is a vote to protect Wall Street.”

But the Republicans argued the bill is flawed and would lead to continued taxpayer bailouts of large financial institutions.

The bill would create an orderly resolution process for large and interconnected financial institutions that fail, establish an independent Consumer Financial Products Safety Commission within the Federal Reserve, and regulate over-the-counter derivatives for the first time. It also would establish a systemic risk council to monitor risks to the financial system.

If the bill is eventually approved by the Senate, it would have to be merged with the separate regulatory reform bill that cleared the House in December, and voted on again by both chambers.

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