Lincoln clarifies derivatives 'push out'

Sen. Blanche Lincoln (D-Ark.) this week is clarifying her controversial effort to restrict banks’ derivatives trading as financial firms ramp up their lobbying efforts against the measure.

The “push out” provision has come under fire from critics and bank regulators who say it would bar banks entirely from trading derivatives and push the market towards less regulated financial firms.

On Monday, Lincoln's office emphasized that the provision would be phased in over two years and would allow umbrella bank holding companies to own swap dealers but only outside of their conventional banking operations.

Bank holding companies would need to set up separate arms to function as swap dealer affiliates that would need to raise their own capital. That could mean bank holding companies being forced to raise billions of dollars. The intent of the provision is to bar banks that receive federal deposit insurance and other federal assistance from engaging in derivatives trading.

The provision is one of the most heavily lobbied aspects of the Wall Street regulatory overhaul that House and Senate lawmakers aim to finalize before the July Fourth recess.

The clarification is unlikely to satisfy banks' concerns. Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corporation Chairwoman Sheila Bair have also raised concerns about the Lincoln provision.

Derivatives trading is big business for Wall Street’s top-tier banks, with five banks controlling 97 percent of the notional value of the $600 trillion market in 2009. U.S. banks recorded $23 billion in derivatives trading revenue in 2009, according to the Office of the Comptroller of the Currency.