The wheeling and dealing has begun as Congress' conference committee works to finalize the financial regulation bill. And the most controversial provision in the legislation is one of the first up for revision. The new rule, proposed by Senator Blanche Lincoln (D-AR), was originally intended to force banks to spin-off their derivatives desks. Opponents of the plan argue that it would ultimately hurt Main Street businesses, reduce lending, and make the derivatives market even riskier. Banks aren't getting their way yet, but reports indicate that the provision is being chipped away at.
According to Bloomberg:
Under the proposed new language, during the phase-in federal banking agencies would have two years to determine the impact of the measure on mortgage lending, small business lending, jobs and capital formation. The proposal does not provide for any action after the study.
We'll have to wait to see how this language actually turns out. But it sounds a lot like an amendment Senate Banking Committee Chairman Christopher Dodd (D-CT) offered at the eleventh hour, which would have revised the provision. The amendment was ultimately shelved, because no one liked it. The change also would have required a two-year study. But after that time, regulators could kill the provision. If the final bill reflects the same power for regulators, then you could expect them to eliminate the new rule, since they broadly agree that Lincoln's requirement would harm the financial industry.