Elizabeth Warren is warning Democrats not to use an upcoming spending bill to soften the banking regulations that were part of the landmark Dodd-Frank law passed after the 2008 financial crisis. But a group of moderate Democrats is quietly negotiating with Republicans who want to do just that, risking the wrath of Warren and a fired-up liberal base that wields considerable power over the party.

The group — including Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota, and Jon Tester of Montana — has been talking with Senate Banking Chairman Richard Shelby of Alabama, who is trying to include the regulatory overhaul in a fiscal 2016 appropriations bill.


The idea is anathema to Warren of Massachusetts and others in the party’s progressive wing — not to mention the White House. Warren almost shut down the government last year when a controversial Wall Street rule was gutted in a spending bill, and she’s vowed she won’t lose again.

While Warren's fiery rhetoric has earned her a nationwide liberal following, the talks raise questions about just how much sway she has over her colleagues. It’s unclear how any deal would move forward at this point without riding on a must-pass bill.

The "crux" of the conversations is whether to just reduce regulatory demands on small banks, or to also tackle thornier areas like changes to the Federal Reserve and other pillars of Dodd-Frank such as the Financial Stability Oversight Council, Sen. Jerry Moran of Kansas, a Republican, told POLITICO.

"That's been the discussion really from the beginning: How expansive can this be, and beyond community banks what more can be accomplished?" he said. "The parameters have been narrowed, but, still, finding that sweet spot is in discussion."

It's not clear where they'll meet in the middle. Donnelly said work is happening "every day." Tester and Heitkamp, while confirming the talks, declined to discuss details.

Senate Banking Committee ranking member Sherrod Brown of Ohio led opposition against a broad set of financial regulatory proposals Shelby put forward earlier this year, but said Tuesday that "everybody's talking to everybody."

While easing rules for community banks has long appeared the most likely area of compromise, some Democrats are showing more signs of willingness to back legislation that would give a boost to regional banks and help shield big firms outside of the bank regulatory sphere from new oversight by the Federal Reserve.

Last week during a House Financial Services Committee vote, several House Democrats supported such measures, which were similar to proposals Shelby has made.

"We're working on different concepts," Shelby said Tuesday, when asked about the negotiations. "I've got some, too. But I'm not going to tell you yet because they'll blow away."

The Treasury Department isn't involved in negotiating a Senate compromise and remains opposed to efforts to roll back key provisions of Dodd-Frank, a Treasury spokesperson said. Dodd-Frank is a key legacy of President Barack Obama, and his administration doesn't want to face a repeat of last year when Congress forced through a rollback of the controversial derivatives rule to avert a government shutdown.

"We are open to discussions about things that are truly technical, but we are very much opposed to anything that would undermine any of the core architecture of Dodd-Frank," Treasury Secretary Jack Lew said at a conference in Washington on Tuesday.

"The line between the two is sometimes hard to define," Lew said.

Shelby will likely keep trying to move the regulatory changes as appropriations riders before turning to an alternative route, said Sen. Bob Corker, a Republican from Tennessee. Shelby laid the groundwork in July when he inserted a wide-ranging overhaul to financial regulations in a Senate spending bill. That bill, and Shelby's regulatory changes, only received support from Republicans.

In a speech on the Senate floor Tuesday, Warren tried to rally opposition against unwinding banking rules in the upcoming spending agreement or a bill to extend transportation programs. Not long before her speech, Brown told POLITICO: "Democrats are pretty unanimous in not using the transportation bill to repeal parts of Dodd-Frank."

In her speech, Warren took aim at Democrats who say they "want to get something done around here for a change."

"If there's anyone in this chamber, Republican or Democrat, who thinks they can slip goodies for Wall Street into these bills without a fight, they are very wrong," she said.

Warren’s office did not respond to a request for comment on Democrats’ talks with Shelby.

With the clock ticking before a Dec. 11 deadline to fund the government, Republicans said this week the Senate is unlikely to try to move a standalone financial services spending bill any further. It will need to be wrapped into a bigger package.

Asked about possibly paring back Shelby's original proposal, Sen. John Boozman (R-Ark.), who chairs the financial services appropriations subcommittee, said: "We're negotiating to try to figure out as much stuff as we can get done."

"Everything's on the table right now," he said.

Corker said he had a good sense of the potential "sweet spot," but he declined to describe it.

"I'll let the sweet spot occur," he said.