House, Senate compromise on financial reform

Restrictions on OTC derivatives trading by big banks survived the process to reconcile similar House and Senate financial reform bills. However, the provisions contain a few less teeth than some lawmakers originally planned.

Working through the night, House and Senate negotiators put the finishing touches on a compromise early this morning that could put a bill on President Obama’s desk by next week.

The final bill includes a watered-down version of U.S. Senator Blanche Lincoln’s provision to force banks to spin off their derivatives desks. Under the compromise, banks will not be able to trade commodity, equity and some credit default swaps, but they’ll be able to trade interest rate and foreign exchange products.

The final bill also includes a version of the Volker Rule, named after former Fed Chairman Paul Volcker. The provision requires depository banks to pare back proprietary trading and limit the size of direct investments in hedge funds.

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