Written by Robert Weissman   

The Senate resumes debate today on the Wall Street reform bill, having late last Thursday rejected probably the most important measure proposed to reduce Wall Street power, strengthen financial stability and fortify our democracy: breaking up the banks.

By a 33-61 vote, the Senate defeated the Brown-Kaufman amendment, which would have forced the largest banks to get smaller. Three Republicans, including Richard Shelby, the ranking member of the Banking Committee, joined 30 Democrats in supporting the measure.

This was a very big deal loss. But things aren’t over by any means.

There are many important things still up for grabs in the Senate bill — controlling derivatives, strengthening and protecting the consumer financial protection bureau, eliminating a global deregulatory scheme on insurance issues, and much more.

One vital measure would reduce bank size indirectly, while also restraining the Wall Street speculative impulse. An amendment proposed by Senators Jeff Merkley, D-Oregon, and Carl Levin, D-Michigan, would implement the “Volcker Rule” — the proposal from former Federal Reserve Chair Paul Volcker to keep commercial banks out of speculative investing. The Merkley-Levin amendment would eliminate loopholes in the Senate Wall Street reform bill, and ensure commercial banks stop betting on the equity, bond and derivatives markets. It would prevent banks from running their own hedge funds. It would make large, non-bank financial companies hold more capital against the risk of loss on speculative bets. And it would prohibit Goldman Sachs-style conflicts of interest, with firms betting against securities they sold to clients.

Merkley-Levin would force commercial banks to sell off their internal betting divisions, and to re-focus on core banking functions. It would make banks be banks.

If enough people weigh in right now, this far-reaching amendment may meet a better fate than Brown-Kaufman. Go here for talking points, and a “citizen whip chart,” where you can enter information about what your senator says he or she is planning to do on this vital matter.

Although the defeat of Brown-Kaufman was crushing, it was nonetheless an indicator of the strength of the populist call to break up the banks and reduce Wall Street power. A sign of Wall Street’s ongoing dominance on Capitol Hill had been its success in defining the call to “break up the banks” as outside the bounds of legitimate debate. Wall Street succeeded in the House, which did not seriously consider proposals to break up the banks. But it could not block the issue from an airing in the Senate; and once aired, the break-up-the-banks proposal gained substantial support, notwithstanding opposition from the White House and the chair of the Banking Committee, Chris Dodd.

The defeat of Brown-Kaufman does not mean the issue will go away. Wall Street hopes that it will be able to weather the storm from this round of legislation, and escape further scrutiny and control. But as the recent Securities and Exchange Commission charges against Goldman Sachs reveal, there are still a lot of buried bodies to be uncovered. The growing tide of scandal may well lead to subsequent rounds of reform, with momentum building to break up the banks that are clinging desperately to their hold on Capitol Hill.

In the meantime, opportunities for real reform remain on the table right now. A host of named and anonymous industry lobbyists recently admitted to the Washington Post that they fear they are losing control of the Senate debate. “You’ve got an environment, six months before an election, where politicians are acting like politicians,” Sam Geduldig, a financial lobbyist and former Republican staffer, told the Post. “They are viewing any vote as a potential campaign ad. And that might not be good for any of us.”

Well, not good for any of the industry lobbyists, perhaps. But ideal for democracy, and the democratic imperative to exert control over Wall Street.

Robert Weissman is president of Public Citizen.