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Will Lincoln Cave on Derivatives After the Primary?

May 18, 2010 - by Donny Shaw

Remember when everyone was expecting Sen. Blanche Lincoln [D, AR] to use her position as Chair of the Ag Committee to insert a weak, loophole-ridden derivatives section in the financial reform bill, but then she surprised everyone by proposing something that was tougher than anything Congress had even considered considering? Well there’s  a rumor floating around that Lincoln only proposed such a tough derivatives section in order to boost her liberal/anti-Wall Street cred and help her in a tough primary, and that after the primary is over she’ll agree to gut her proposal and give Wall Street many of the concessions they want.

Well, her primary is today, and, like clockwork, reports are out that Lincoln is in private talks to change her derivatives language. Financial Times reports:

Two key Democratic senators offered a narrow path for compromise over the weekend after banks pleaded with regulators and clients to help overturn provisions of a financial regulation bill they say will rock markets.

Chris Dodd, Senate banking committee chairman, and Blanche Lincoln, chairman of the agriculture committee, told the Financial Times there was room to negotiate on a proposal that would force banks to spin off their swaps desks.

Lincoln’s swap-desk spin-off provision would require banks to house their derivatives trading operations under a separate, regulated entity that could remain a part of the bank, but that would no longer have access to the Federal Reserve’s discount window. The banks and some Republicans are dead set against this idea.

According to reports, Dodd is putting together a manager’s amendment to the financial reform bill that will incorporate all the amendments that were adopted on the floor. This is where changes to Lincoln’s derivatives language will happen too, meaning that there won’t even be a separate vote on removing the spin-off provision (if, in fact, that is the “narrow path for compromise” Lincoln and Dodd have agreed on). It will just be taken out through behind-the-scenes dealings between Dodd, Lincoln and Sen. Shelby (and maybe a bank lobbyist or two).

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