NU Online News Service, Feb. 5, 2:29 p.m. EST

Negotiations have broken down over a bipartisan financial services reform package in the Senate, leaving Democrats to unveil their own proposal by the end of the month, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said today.

The key issue is apparently the authority to be given a consumer protection unit that both Democrats and Republicans in the Senate Banking Committee believe should be housed within the Treasury Department.

According to industry lobbyists, Sen. Dodd and Sen. Richard Shelby, R-Ala., ranking minority member, have apparently reached an impasse over how much power the new agency would have to impose standards on the sale of bank and securities products.

House financial services reform legislation creates a Consumer Financial Protection Agency, which is opposed by the banking industry. The key problem the banking industry has with the CFPA provision in the House bill is that it provides "reverse preemption," that is, it allows states to impose their consumer protection standards on products sold in their states.

As contained in legislation passed by the House, the insurance industry is exempt from the CFPA.

But Sen. Shelby said in a statement issued later today that there is more at issue than consumer protection provisions.

Besides the problem of resolving troubled institutions, he said other issues involved in the disagreement include derivatives regulation and corporate governance.

"Consumer protection is not the only issue that remains unresolved," he said. "We must craft a resolution regime that ensures taxpayers will never again bear the losses for risks taken in the private marketplace.

"I will not agree to any legislation until I am satisfied this goal is also achieved," he said.

Sen. Dodd has been negotiating with committee Republicans on a bipartisan bill since December.

In a statement, Sen. Dodd said, "While I still hope that we will ultimately have a consensus package, it is time to move the process forward," adding that he has instructed his staff "to begin drafting legislation to present to the committee later this month."

That means Sen. Dodd will likely start with the "Restoring American Financial Stability Act of 2009, legislation Sen. Dodd introduced in November but later abandoned in favor of having all members of his committee participate in drafting a more bipartisan bill.

The original Dodd bill created an Office of National Insurance; calls for a study and report on modernization and improvements to the system of insurance regulation; and includes the Non-admitted and Reinsurance Reform Act of 2009, as introduced last year in both the House and Senate.

The surplus lines provisions, as well as provisions creating an ONI, are also included in the House bill.

In his comments today, Sen. Dodd said in his new bill he would incorporate components of provisions hammered out in the bipartisan talks.

"Over the past two months we have had productive bi-partisan negotiations in a number of areas and I intend to incorporate many of those agreements in this new proposal," he said, noting however, that "Last night, Sen. Shelby assured me that he is still committed to finding a consensus on Financial Reform, but for now we have reached an impasse."