Congress moves to deal on Volcker rule

Congress on Thursday moved a step closer to striking a deal on a controversial part of Wall Street overhaul legislation aimed at restricting trading at big banks.

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The proposal on the “Volcker rule,” named after Paul Volcker, the Obama administration adviser, seeks to limit proprietary trading at big banks as well as their ability to sponsor hedge funds and private equity funds.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) unveiled the new language, which was still under debate Thursday night among lawmakers on a conference committee finalizing the bill.

The “Volcker rule” provision and another measure backed by Sen. Blanche Lincoln (D-Ark.), which restricts banks’ derivatives trading, have been the two most controversial parts of final talks on the bill. Lawmakers were still negotiating on the Lincoln provision, which has faced strong opposition from centrist Democrats, particularly from New Democrats and New York House members.

Senior White House and Treasury officials were meeting on Capitol Hill with Lincoln and centrist House members. Reps. Scott Murphy (D-N.Y.), Melissa Bean (D-Ill.), Greogry Meeks (D-N.Y.) and Mike McMahon (D-N.Y), who have all raised concerns about Lincoln’s provision, were in a series of meetings in Dirksen.

Treasury Deputy Secretary Neal Wolin and Assistant Secretary Michael Barr were also seen in the building in a late session of talks.

House Majority Leader Steny Hoyer (D-Md.) earlier on Thursday was also working on the issue.

The Dodd proposal seeks to more clearly define limits on proprietary trading, differentiate risk-mitigating hedging from other activity involving derivatives and provide more explicit conditions to allow insurers — which are often organized as bank holding companies — to continue to do trading essential to their normal business.

The proposal would also allow banks to invest a small amount of money in hedge funds and private equity funds.

Sen. Scott Brown (R-Mass.), whose vote Dodd likely will need to win in order to move the conference report through the Senate, and other lawmakers had raised concerns about a blanket ban on sponsorship.

Brown has been pushing for changes to the Volcker provision to benefit Massachusetts-based financial interests, among others.

Dodd’s proposal would allow investment in hedge funds and private equity funds to be limited to no more than 3 percent of fund capital. Total investment in hedge funds and private equity fund could not exceed 3 percent of the firm’s tangible common equity.

The language on the Volcker rule has been among the most contentious debates of the Wall Street reform conference.

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Democratic Sens. Carl Levin (Mich.) and Jeff Merkley (Ore.) have pushed hard for stronger limits than what was included in the original Senate legislation.

At press time, lawmakers were vowing to complete the conference on the legislation late Thursday, setting up a final vote on the bill before the July 4 recess. 

A deal on the Volcker measure could help ease final passage of the 2,000-page Wall Street overhaul bill, and would put  President Barack Obama on the cusp of a second major domestic policy victory before the midterm elections.

This story was corrected from an earlier version at 10:55 p.m.