Lawmakers would redirect the stream of bailout repayments as well as untapped dollars to offset shortfalls created by the Wall Street reform bill, which spends money by creating new agencies. The move would offset $11 billion in spending.
Currently, the repayments and untapped TARP dollars are supposed to pay down federal deficits. But under these changes, they'd go specifically to pay down new Wall Street reform-created deficits.
The lawmakers would also hike the premiums that the biggest banks, those with more than $10 billion in assets, pay for taxpayer-backed federal insurance on their commercial deposits, which would offset roughly $5.7 billion of the bill's costs.
"We tried to come up with an alternative idea to address concerns," said Sen. Christopher Dodd, D-Conn.
Republicans involved in financial reform talks balked and tried to get Democrats to cut the federal stimulus program to pay for Wall Street reforms.
"This ranks right up there at the top of the list for pure deception for treating the American taxpayer in an appropriate way," said Sen. Judd Gregg, R-N.H.
The revised provision requires agreement by both the House and Senate negotiators to be included in the bill. Votes are expected later Tuesday.
Democrats have been hoping to get final passage of the bill this week, ahead of the July 4 recess.
But the last-minute changes to the bill, coupled with a planned memorial for Sen. Robert Byrd, mean that if the Senate doesn't finish work passing the bill by Wednesday, they could run out of time this week.
"I want to pay due respect to him, and so there are a lot of feelings that maybe we should be careful about trying to proceed too aggressively with the legislation in the midst of a funeral and everything else," Dodd said.
The full House is expected to take up the bill Wednesday.
Democrats need 60 votes in the Senate to overcome any filibuster of the measure. With Byrd's death and a promise that Sen. Russ Feingold, D-Wis., opposes the bill, they are down to 57 supportive Democrats in the Senate. Democrats need three Republicans to overcome a filibuster on the bill.
Earlier Tuesday, Sen. Scott Brown, R-Mass., announced in a letter that he would oppose the bill, thanks to a new tax on banks, which was tacked on to the final Wall Street reform bill late last week. Two other Republicans who had originally supported the bill were non-committal, because of the same issue.
The tax would have been levied against the largest banks and hedge funds to pay the tab for implementing the new reforms. A Congressional Budget Office analysis estimates the tax would raise $18 billion from 2012-2015.
The reform measure, the result of more than 18 months of negotiation and debate, aims to strengthen consumer protection, shine a light on complex financial products and establish a new process for shutting down giant financial firms in trouble.
While leaving an economic briefing, President Obama said Tuesday that he believes that the Senate will pass the reforms, despite Byrd's death.
"I'm confident that given the package that has been put together, that senators, hopefully on both sides of the aisle, recognize it's time we put in place rules that prevent taxpayer bailouts and make sure that we don't have a financial crisis that can tank the economy," Obama said. "I think there's going to be enough interest in moving reform forward that we're going to get this done."
A spokesman for Sen. Maria Cantwell, D-Wash., who also voted against the bill said she was still reviewing it.
- CNN Congressional Producers Ted Barrett and Deirdre Walsh contributed to this report.
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