Sources Say Senate Dems Nearing Derivatives Deal

ABC News' Matt Jaffe reports: Senate Banking Committee boss Chris Dodd and Agriculture Committee chair Blanche Lincoln are nearing an agreement on a combined bill for derivatives oversight, sources close to the negotiations told ABC News Sunday evening. Dodd and Lincoln are still putting the final touches on the agreement, but the new language will now become part of the larger Dodd bill that will come to a cloture vote on the Senate floor on Monday. The impending agreement signals a key step towards bringing transparency to the murky derivatives market that has been largely free of any regulation. Ever since Lincoln's panel passed the derivatives bill out of committee last Wednesday, the two lawmakers and their staffs have been meeting to settle on the final language. That language, sources say, will keep intact the Agriculture Committee's strong measures for new oversight of derivatives. Most importantly, financial firms that deal in derivatives would have to separate that business from their banking business that benefits from access to federal support. The bottom line: banks would have to spin off their swaps desks. Proponents of the rule such as Lincoln have touted that the measure will make banks get back to the business of banking. Under the measure, nearly all derivative contracts will have to be traded on public exchanges and approved by clearinghouses. While sources say there are a few minor changes from the measure that passed the Agriculture Committee last week, the vast majority of the final language will be unchanged, a decision that will please Sen. Chuck Grassley, the lone Republican on the panel who supported the measure. Whether or not it will please Republicans or even the White House for that matter is another story. Earlier today White House economic adviser Austan Goolsbee was less than effusive in backing Lincoln's plan to separate derivatives trading from banks that enjoy federal support. "This issue of derivatives is totally central," Goolsbee said. "Now three years ago virtually no one in America had even heard of derivatives, or if they had, they had nightmares of their, you know, college math class or something. The fact is that there are now $600 trillion of derivatives that are trading in the dark, that we know virtually nothing about and are unregulated. And it's not just a party that's taking place on Wall Street that has no impact on America. They're exactly the things that threatened to blow up the entire financial system with AIG. So the president's completely committed that we are going to bring the $600 trillion out into the open and under the regulatory umbrella," Goolsbee told Jake Tapper on "This Week". Pressed if the administration supported separating swaps desks from banking operations, Goolsbee replied, "Well, there are several very technical aspects of difference between the Lincoln bill and the Dodd bill..." That prompted Republican senator Bob Corker to say with a chuckle, "I think what Austan is saying is he doesn't support it. And I don't either." Not surprisingly, the financial industry opposes the measure, too. Scott Talbott, chief lobbyist for the Financial Services Roundtable, told ABC News tonight, "Derivatives, when properly used, are an effective tool to manage the risk businesses face. The bill, by requiring divestment, will ironically increase the risk businesses face or will drive the transactions overseas." The Dodd-Lincoln derivatives negotiations have been taking place because Dodd only put place-holder language on derivatives in his financial reform proposal released in late March. At the time, Banking Committee members Judd Gregg and Jack Reed were engaged in talks aimed at reaching a bipartisan agreement, but those talks broke down. So too did talks between Lincoln and the Agriculture Committee's ranking Republican Saxby Chambliss. That left the matter in the hands of Lincoln, who ultimately unveiled a surprisingly strong measure. Finally, just in case anyone is wondering why the Agriculture panel is involved in the issue to begin with, the committee has jurisdiction over the Commodity Futures Trading Commission which handles derivatives.

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