Correction: It appears that Gillibrand's amendment on proprietary trading was notincorporated into the manager's mark, but her exemption for foreign exchange derivatives was.
Yeah, you read that headline correctly. Senate Democrats have just weakened Blanche Lincoln's derivatives language within the overall Wall Street reform legislative package.
As chair of the Agriculture Committee, Lincoln had jurisdiction over the derivatives language aspect of the bill (I know it seems weird, but that is the committee with jurisdiction). In terms of the sheer money involved, derivatives are practically the entire bill. In 2008, the derivatives market was worth $81 trillion, which is about 30-40% larger than the GDP of the entire world.
Lincoln's language on derivatives will be combined with the rest of the bill in the manager's amendment once it is on the floor. Unfortunately, it seems that Senate Democrats, led in this instance by Kirsten Gillibrand (NY), Bob Casey (PA) and Debbie Stabenow (MI), thought that Blanche Lincoln, that paragon of liberalism, went too far. So, several exceptions to Lincoln's derivatives language were inserted during the committee mark-up process:
Subscription-only Congress Daily discussed the Gillibrand exemptions last night. While this article is written in the conditional, and Gillibrand did not actually offer the amendment, she still succeeded in forcing some these changes into the bill:
Senate Agriculture Chairwoman Blanche Lincoln's stance against Wall Street reflected in her derivatives bill has drawn the protest of Sen. Kirsten Gillibrand, D-N.Y., whose state is home to the large banks that dominate the over-the-counter trading market. Gillibrand is attempting to scale back a provision in Lincoln's bill, which will be marked up today, requiring large commercial banks to spin off their highly profitable swaps desk. The Lincoln measure will be merged with Senate Banking Chairman Christopher Dodd's regulatory revamp package, which is likely to be on the floor next week.
Gillibrand has sponsored an amendment that would put up roadblocks to Lincoln's language prohibiting banks from receiving FDIC deposit insurance or accessing the Federal Reserve discount window if they trade in swaps or securities-based swaps. The bill would effectively force JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley and Bank of America to spin off their swaps desks, which bring in billions of dollars in revenue annually. All except Bank of America are headquartered in New York, though its Merrill Lynch investment banking subsidiary is housed in the city.
The amendment would require the Commodity Futures Trading Commission to undertake a study on banks that had swap operations as to whether they pose a risk to the FDIC system and the impact of barring them from offering such services. The CFTC would then propose rules based on the findings, which would have to be approved on a two-third vote by a panel representing the Fed, Treasury, the SEC, the FDIC and the Office of the Comptroller of the Currency.
And it wasn't just Gillibrand. Bob Casey secured permanent exemptions for pension funds that deal in derivatives. Debbie Stabenow of Michigan pulled some corporate home-state pork by securing exemption for Ford Motor Finance and other highly leveraged financial subsidiaries of manufacturing and homebuilding firms.
When it comes to placating home-state interests, many Democratic Senators can be hard right-wingers. That Gillibrand, Stabenow and Casey moved to the right of Blanche friggin' Lincoln, and successfully poked holes in her derivatives language, is a good example of this.