WASHINGTON — After more delays and partisan fighting late Thursday over whether and how to proceed on financial reform, the Senate rejected 61 to 33 a populist amendment that would have forced the break up of the nation's biggest banks.

The measure from Democrats Sens. Sherrod Brown of Ohio and Ted Kaufman of Delaware would have placed a hard cap on banks of 10% of the nation's insured deposits. It would have limited a bank's nondeposit liabilities at 2% of the national gross domestic product. That cap would have been 3% for financial institutions that do not own a bank.

Had the provision been adopted and made it into law, these limits would have forced the largest institutions to shrink in size to roughly where they were a decade ago.

Sen. Mark Warner, a moderate Democrat from Virginia and a chief architect of the bill’s section that gives the government resolution powers over large financial holding comapnies, spoke out against the Brown-Kaufman amendment saying that such caps were overkill.

 “I understand their goals. I do believe the chairman’s bill addresses those goals,” Warner said. “We have a 10% total liabilities in the U.S.[cap] in the existing bill right now. We have only four of the largest 50 banks in the world that are American domiciled banks. I believe this arbitrary asset-size cap is not the appropriate restriction. The real question should be the level of interconnectedness and risk taking.”

Brown defended his amendment, arguing that institutions that are too big to fail have an unfair competitive advantage in the market and bring too great a risk.

“Just 15 years ago the six largest U.S. banks had assets equal to 17% of our GDP. Today the six largest banks have total assets estimated to be in excess of 63%,” he said. “Alan Greenspan said too big to fail is too big. These six banks -- in addition to the fact they already have such dominance in our economy -- these six banks when borrowing money, when going into the capital markets, enjoy an 80 basis point advantage over banks in Denver and Cleveland – regional banks in our states.”

Before rejecting the Brown-Kaufman amendment, the Senate also rejected a second degree amendment to it from Nevada Republican Sen. John Ensign that would have subjected Fannie Mae and Freddie Mac to the same size caps. The measure failed 59 to 35.

During debate, Senate Banking Committee Chairman Chris Dodd spoke out against reining in the government-sponsored enterprises.

“Ninety-seven percent of all mortgages in the country today are going through the GSEs -- Fannie and Freddie," Dodd said. "Without them there is no housing market in the country… This is far too complex an issue to do in this bill. We already have 1,500 pages. We never intended to deal with every financial issue in the United States and particularly one where the housing market today is absolutely dependent upon this. You adopt this amendment, believe me, by tomorrow you’ll have an economic reaction in the country you won’t want to believe.”

Dodd did promise that the reform bill would guarantee Congress return to the issue next year.

“We are going to deal with this," he said. "I’ll have language in this bill that will actually guarantee that we will take up this issue in the coming Congress… To grapple with that and all these other matters in the same bill was really asking too much.”

The Senate did manage to adopt a few other non-controversial amendments Thursday evening.  

The chamber approved an amendment by voice vote from Sen. Maria Cantwell, D-Wash., that would bolster the Commodity Futures Trading Commission’s enforcement tools to crack down on manipulation in futures and derivatives markets.

The Senate also approved an amendment by voice vote from Sens. Ben Cardin, D-Md. and Chuck Grassley, R-Iowa that would provide whistle blower protection for employees of credit rating agencies.

Despite spending much of the late afternoon debate focusing on a compromised amendment from Sen. Bernie Sanders, I-Vt., and Dodd that would let the Government Accountability Office audit the Federal Reserve Board’s lending since the crisis, the chamber postponed a vote on the provision.

The original more sweeping measure would have reviewed all central bank actions and was staunchly opposed by the administration and the Fed.

The revised amendment is ultimately expected to pass.

The chamber also debated an amendment from Republican Sens. John McCain and Richard Shelby called the "GSE Bailout Elimination and Taxpayer Protection Amendment."

It would require an orderly end to the GSEs conservatorship in two and half years, resulting in privatizing the companies or forcing their dismantling in a receivership.

The Senate also shelved a vote on the McCain amendment but it is ultimately expected to fail.

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