WASHINGTON — Senate Banking Committee Chairman Christopher Dodd offered a compromise Tuesday to study and delay a contentious provision on how to police the complex securities known as derivatives.
The measure could remove one of the major sticking points in a sweeping financial-regulations bill before the Senate. The existing bill would require banks to spin off their derivatives business into subsidiaries. That requirement, inserted into the bill by Sen. Blanche Lincoln, D-Ark., has been criticized by Wall Street and several federal banking regulators, who say it would drive the derivatives trades into unregulated markets.
Dodd, D-Conn., proposed that implementation of that measure be delayed for two years while an oversight council of regulators studies the requirement to determine whether it would have an adverse effect on the markets and the economy.
Lincoln is in a tight primary contest and was fighting criticism that she was too friendly to banks. Dodd offered the amendment Tuesday while Lincoln was in Arkansas for the primary election.
“I remain fully committed to my provision and will fight efforts to weaken it,” Lincoln said in a statement late Tuesday. “I’m proud of the support my provision has received both inside and outside the Senate and will defend it should there be a debate on the Senate floor.”
The compromise by Dodd could allow the overall regulatory bill to move through the Senate. It will then have to be reconciled with a House version of financial regulation.
Derivatives are exotic investment instruments often used by corporations to hedge risks. But they have been used by banks as investment bets.
Wall Street banks have a lucrative business writing derivatives contracts for their clients. Many advocates of new regulations have proposed that commercial banks be prohibited from conducting derivatives trades with their own accounts.
But Lincoln also would require banks to separate their derivatives-contract operations. That has prompted a flurry of opposition. Among those calling for the provision to be dropped are Federal Reserve Chairman Ben Bernanke.
