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Sen. Blanche Lincoln's [D, AR] surprise primary win Tuesday has breathed new life into her financial reform provision to ban banks from getting government assistance for their derivatives and swap trading activities.

The provision, known as Sec. 716, is going to be at the center of the financial reform conference committee that starts today (live feed). It has generally been talked about as forcing banks to "spin off" their derivatives trading activities into separate entities, but that description makes it sound more aggressive than it actually is. This isn't a "break up the banks" provision. The new derivatives entity would still be an affiliate under the same parent company as the bank they were spun off from.

The real effect of Sec. 716 would be to put a firewall between regular commercial banking activities and risky derivatives trading, with banks continuing to have access to government assistance via FDIC insurance and the Fed's discount window on the commercial banking side, but without access to any government assistance for derivatives activities. The idea is to make sure taxpayers aren't liable for banks' risky derivatives trades when they go bad.

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Lincoln Wins -- What's it Mean for FinReg?

June 8, 2010 - by Donny Shaw

Moderate Democrat Sen. Blanche Lincoln [AR] survived a tough run-off primary election Tuesday night against her challenger for the left, Arkansas Lt. Governor Bill Halter. Lincoln's victory tonight means that she will be on the ballot in the November general against Republican challenger Rep. John Boozman [R, AR-3].

So, what are the implication here for life under the dome, particularly with financial reform about to go into conferece committe on Thursday?

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