Senate Democrats will include Agriculture Chairwoman Blanche Lincoln's tough derivatives language as a part of their package to revamp the nation's financial markets, according to an aide, sending a message that they intend to continue pressure on Wall Street as floor debate kicks off on Monday.
Democrats agreed on Sunday to include the major provisions in Lincoln's measure as opposed to the derivatives section authored by Banking Chairman Christopher Dodd, an aide said. The Lincoln language will be attached to a broader Dodd regulatory package that will face a cloture vote Monday night. The two panels share jurisdiction over the issue.
Lincoln's measure included tougher provisions to overhaul the over-the-counter market, where trades are conducted bilaterally with little oversight. It will force most transactions to go through a third-party clearinghouse to guarantee the deal and set margin requirements. Those trades would then be forced on exchanges.
The underlying bill keeps a Lincoln provision that will effectively require big banks like JPMorgan Chase and Goldman Sachs to spin off their swaps desks, prohibiting them from receiving FDIC deposit insurance or accessing the Federal Reserve discount window in any connection with their derivatives activities.
The measure also includes minor tweaks to language that would require regulation of the $60 trillion-plus foreign exchange derivative market, a concern to the Treasury Department. The language would include trading and clearing provisions for foreign exchange swaps and forwards, but allow Treasury to exempt those trades from clearing and exchange reporting requirements if it determines they are not structured to evade accountability under the bill. Treasury was involved in the weekend talks, the aide said.
Dodd and Lincoln had been wrangling over how hard to be on the big Wall Street firms that dominate the OTC market, as Dodd did not include either the foreign exchange language or the swap-dealer desk separation provision in his bill. The decision reflects an emerging populist drive within members of the caucus -- such as Maria Cantwell of Washington and Ted Kaufman of Delaware -- arguing that Dodd needs to hold firm on the issue. But some members have concerns over the Lincoln language, which is opposed by the industry. "The U.S. just took a step backwards," one lobbyist said of the decision.
The underlying Dodd package will face a vote on a motion to proceed at 5 p.m., which is expected to fail on a party-line vote. Senate Banking ranking member Richard Shelby said on NBC's Meet The Press today that his talks with Dodd were getting "very, very close" though divisions remained. Shelby said a vote against cloture would not end debate on the bill, but would speed up negotiations as Democrats realize that they have to offer some concessions to take up debate.
"I think we will get a bill. If the Democrats want a bill and will give us some things that we think that are substantive in nature, like make the 'too big to fail,' send a message that nothing is too big to fail in this country and tighten up the language," Shelby said.
Dodd, also appearing on the program, agreed. "This doesn't end the debate tomorrow; it begins the debate," he said.