Lincoln Appears to Win Out on Derivatives

Posted April 26, 2010 at 11:45am

Senate Agriculture, Nutrition and Forestry Chairman Blanche Lincoln (D-Ark.) appears to have won the fight over how to regulate derivatives in the financial regulatory reform measure coming to a Senate vote Monday night.

But it remains unclear how that deal will affect the larger quest to find bipartisan support for the bill.

After working furiously through the weekend, Banking, Housing, and Urban Affairs Chairman Chris Dodd (D-Conn.) decided to accede to a strict provision in Lincoln’s committee bill that would essentially force banks to spin off the portions of their businesses that sell derivatives, sources said. Derivatives are complex financial instruments in which investors can bet on the future prices of commodities and other financial products. Mortgage-based derivatives were blamed in part for the near-collapse of the banking industry in the fall of 2008.

The Lincoln plan is backed by a few Republicans, including Sens. Chuck Grassley (Iowa) and Olympia Snowe (Maine), but is opposed by other potential players such as Sen. Bob Corker (R-Tenn.). A spokesman for Banking ranking member Richard Shelby (R-Ala.) said Shelby had not seen the agreed-upon derivatives language yet and could not comment on how it would affect the bipartisan negotiations between Dodd and Shelby.

Dodd and White House officials had initially been cool to Lincoln’s more stringent derivatives language, and Dodd had privately indicated that he wanted her to offer her bill as an amendment on the floor, rather than adopting it as part his larger measure. The issue was a flash point during the Democrats’ regular Thursday luncheon, in which Sen. Maria Cantwell (D-Wash.) and others stood up to argue passionately for Lincoln’s version.

Lincoln said last week that she planned on asserting her panel’s jurisdiction and wanted to make sure that whatever financial regulatory measure that came to the floor included her bill.

The Senate is set to vote at 5 p.m. Monday on whether to beat back a filibuster of the motion to proceed to the larger Dodd bill. That vote is expected to fail unless one or more Republicans votes with all Democrats to invoke cloture. A filibuster of the motion to proceed would prevent the bill from coming up for debate.

Even if the Senate does not move to the bill Monday, negotiations between Dodd and Shelby are expected to continue.

Jessica Brady contributed to this report.