The Senate debates amendments for the financial regulatory reform bill today, bringing Congress one step closer to a sweeping overhaul of how Washington and Wall Street interact. The bill, a response to the financial crisis intended to prevent future collapses, faces key tests in the Senate, where Democrats' margins are slimmest. Senate Democrats are focusing on legislation that would protect the economy from massive bank failures, but also must craft the legislation in such a way that will garner sufficient Republican support. Here's how the reform bill is shaping up.

• Senate Dems on a Mission  The New York Times' David Herszenhorn reports, "Liberal Democrats in the Senate, emboldened by a wave of populism, are trying to make financial regulatory legislation far tougher on Wall Street, potentially restricting or breaking up the biggest banks and financial companies. ... the confluence of a high-stakes election year and a pervasive anti-Wall Street sentiment after the recession has given liberals unusual muscle in the debate. It has also raised the prospect that they could succeed in reshaping the bill." Why?

The liberal amendment that could be hardest to defeat — and is among the most deeply dreaded by Wall Street — also has some of the purest populist appeal: a proposal by Senator Sherrod Brown of Ohio and Senator Ted Kaufman of Delaware to break up the nation’s biggest banks by imposing caps on the deposits they can hold and limits on other liabilities.

• Is Too-Big-To-Fail Compromise Worse or Better?  The Atlantic's Derek Thompson assesses the change. "The old plan would try to pay for banks' failures before they failed. The new plan would pay for banks' failures after they fail. The old plan winds down banks with an insurance fund. The new plan winds down banks with a line of credit from Treasury," he writes. "But the new plan leaves open the same question: what happens when lots of banks start to fail together? ... the government might not have the stomach for widespread liquidation."
  

• Fed Under Fire  The Wall Street Journal's Jon Hilsenrath and Michael Crittendon write, "Federal Reserve officials are becoming increasingly concerned that challenges to their authority and independence are gaining momentum in the Senate as it considers financial overhaul legislation." Proposals under consideration "would strip them of authority to oversee thousands of small, state-chartered banks and one that would make the president of the Federal Reserve Bank of New York a presidential appointee."

• Republicans Join In Bailout Provision  The Washington Post's Brady Dennis can hardly believe the 95-to-5 vote. "In a rare show of bipartisanship, the Senate on Wednesday overwhelmingly approved an amendment to the financial regulatory bill aimed at ensuring that taxpayers never again be on the hook for bailing out collapsed banks and investment firms." Democrats crafted the provision in part "To put an end to GOP attacks that the far-reaching bill would perpetuate taxpayer-funded bailouts."

• Squandering Populism  The Washington Post's Greg Sargent wonders, "With debate finally under way on the financial reform bill, are Dems at risk of squandering an opportunity to capitalize on the unusually high level of populist anger to achieve true and lasting Wall Street reform? That's what Senate liberals are claiming as they mount an aggressive last-minute push against the White House, which is working to ensure that the bill isn't too tough."

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