Congress moves closer to 'Volcker rule' deal

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.

The proposal on the "Volcker rule," named after Paul Volcker, the Obama administration adviser, limits proprietary trading at big banks and on their ability to sponsor hedge funds and private equity funds. Senate Banking Committee Chairman Chris Dodd (D-Conn.) unveiled the proposal, which was still under debate Thursday night among lawmakers on a conference committee finalizing the bill.

Lawmakers were vowing to complete the conference on the legislation on 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. President Barack Obama is on the cusp of a second major domestic policy victory before the midterm elections.

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.

Sen. Scott Brown (R-Mass.) has been pushing for changes to the Volcker provision to benefit Massachusetts-based financial interests.

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. Democratic Sens. Carl Levin (Mich.) and Jeff Merkley (Ore.) push hard for stronger limits than the original legislation.

The proposal would also allow banks to invest a small amount of money in hedge funds and private equity funds. Brown and other lawmakers had raised concerns about a blanket ban on sponsorship.

The 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.