WASHINGTON BUREAU — The battle over the shape of financial services reform legislation is heating up as the Senate version of the bill edges closer to the floor.

“I am actually confident that we can work out an effective bipartisan package that assures that we never have ‘too big to fail’ again,” President Obama said today at a White House meeting with the House and Senate leaders from both parties.

Earlier, Senate Minority Leader Mitch McConnell, R-Ky., had contended that the Senate version of the bill effectively “authorizes permanent bailouts” through a number of provisions, including one provision that calls for the government to use fees from large financial institutions to create a $50 billion bailout fund.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, who oversaw the development of the bill, has said that he will start to take the steps needed to get his bill to the Senate floor “in the next several days.”

“Our bill extends oversight to dangerous nonbank financial companies like AIG that could pose a risk to our financial stability,” Dodd said today on the Senate floor.

The bill also “eliminates the Federal Reserve’s ability to prop up individual institutions using its 13(3) authority, another way to stop banks from thinking they could be bailed out,” Dodd said. “”The Fed’s lending authority is strictly restricted, not expanded as some have claimed.

The bill “bill sets up a predictable, orderly, and safe process for shutting down dangerous Wall Street firms that fail without endangering the entire economy,” Dodd said.

The biggest Wall Street firms will have to put the money in the $50 billion fund, and “any shortfall will be made up by the largest and riskiest financial firms,” Dodd said.

Observers have suggested that MetLife Inc., New York (NYSE:MET) – a bank holding company with $425 billion in assets – might be one of the companies that would have to contribute to the bailout fund.

In other financial services legislation news:

- The Senate Agriculture Committee is considering a measure that would narrow an exemption that swaps traders could use to keep from having to conduct transactions through a major exchange.

The House and the Senate are working on bills that would require participants in the swaps market to conduct much of their business through exchanges.

Exemption provisions in the bills would exempt swaps “end users” such as airlines, manufacturers and farmers from having to work through exchanges.

The life insurance industry says it ought to qualify for an exemption, too, because life insurers use derivatives to reduce the interest rate risk and capital loss risk on the long-term securities used to fund insurance policies, annuities and other products, not to speculate on shifts in interest rates and levels of default risk.

The proposed Agriculture Committee measure would continue to exempt transactions “for those end users who are hedging legitimate commercial risk” from the exchange-use requirement.

Although some industry lobbyists said they had not seen the actual language, they said they believe the tighter language will still allow insurers to use custom derivatives.

Another lobbyist said he believes the definition of “financial services company” in the legislation could possibly be used to limit insurers to buying exchange-traded derivatives.

- The American Council of Life Insurers, Washington, is objecting to a provision in the Senate bill that would prohibit institutions deemed systemically important from lending an amount to any unaffiliated company that exceeds 25% of the capital stock and surplus of the lending institution.

The provision could limit lending to institutions such as insurers by the Federal Home Loan banks, the ACLI says.

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CORRECTION: An earlier version of this story gave an inaccurate description of the Senate Agriculture Committee exchange-use exemption provision. The committee is still considering the provision.