UPDATE ON THE BANKING FRONT: The only thing with teeth left in the Dodd financial reform bill [3] -- provisions introduced by Arkansas Senator Blanche Lincoln [4] that would force the biggest banks to spin off their swaps (or derivatives) desks into separate entities -- may be taken out without even getting a vote. It may be stripped out via a Dodd "manager's amendment," which is being created privately in negotiations with Senators. A manager's amendment is a package of numerous individual amendments agreed to by both sides in advance.

Right now is an important moment to call Senator Lincoln's office and tell her to defend her original language to end federal and taxpayer backing for reckless Wall Street gambling. You can reach her office at (202) 224-4843.

From Open Congress [5]

Remember when everyone was expecting Sen. Blanche Lincoln [D, AR] to use her position as Chair of the Ag Committee to insert a weak, loophole-ridden derivatives section in the financial reform bill, but then she surprised everyone by proposing something that was tougher than anything Congress had even considered considering? Many have speculated that Lincoln only proposed such a tough derivatives section in order to boost her liberal/anti-Wall Street cred and help her in a tough primary, and that her conviction might wane after the election.

Well, her primary is today, and reports are out that Lincoln is in private talks to change her derivatives language. Financial Times [6] reports:

Two key Democratic senators offered a narrow path for compromise over the weekend after banks pleaded with regulators and clients to help overturn provisions of a financial regulation bill they say will rock markets.

Chris Dodd, Senate banking committee chairman, and Blanche Lincoln, chairman of the agriculture committee, told the Financial Times there was room to negotiate on a proposal that would force banks to spin off their swaps desks.

Lincoln’s swap-desk spin-off provision would require banks to house their derivatives trading operations under a separate, regulated entity that could remain a part of the bank, but that would no longer have access to the Federal Reserve [7]’s discount window. The banks and some Republicans are dead set against this idea.

According to reports, Dodd is putting together a manager’s amendment to the financial reform bill that will incorporate all the amendments that were adopted on the floor. This is where changes to Lincoln’s derivatives language will happen too, meaning that there won’t even be a separate vote on removing the spin-off provision (if, in fact, that is the “narrow path for compromise” that Lincoln and Dodd have agreed on). It will just be taken out through behind-the-scenes dealings between Senators Dodd, Lincoln and Shelby, and maybe a bank lobbyist or two.