Tough swaps rules in Democrats' bill: Merkley

U.S. Senate Banking Committee member Sen. Jeff Merkley (D-OR) speaks during the Reuters Financial Regulation Summit in Washington April 26, 2010.

WASHINGTON (Reuters) - The Senate Democrats' financial reform bill will include provisions that would require banks to spin off swaps desks, Democratic Senator Jeff Merkley said on Monday.

Those provisions would limit banks', such as Goldman Sachs and JPMorgan Chase, involvement in the lucrative $450 trillion over-the-counter derivatives market.

The U.S. Senate is due to vote at 5 p.m. EDT Monday on whether to start debating the Democrats' bill to impose strict rules on Wall Street.

Senate Agriculture Chairman Blanche Lincoln has been pressuring Senate Banking Chairman Christopher Dodd and the White House to include tougher rules from her derivatives reform bill.

When asked whether language from Lincoln's bill would be included in Democrats' sweeping reform package, Merkley told the Reuters Global Financial Regulation Summit in Washington: "That is my expectation."

Among Lincoln's proposals, is one that would force banks to spin off swaps desks or give up federal protections such as deposit insurance and access to the Federal Reserve's discount window.

It is unclear whether Democrats will be able to get the votes required to start debate on Monday. If the Republicans defeat the Democrats' motion, Merkley said it opens the door to the possibility that a merged bill will be brought to the floor, instead of the Dodd bill plus Lincoln's amendment.

If Democrats get the votes needed to start debating the bill, Merkley said Lincoln's provisions would be incorporated by an amendment.

"It is harder to incorporate by amendment," Merkley said.

The Democrats' bill will require most swaps be cleared by clearinghouses to limit the domino effect large, risky trades could have on the economy. It will also require trading of most swaps on exchanges or other electronic platforms.

There will be a narrow exception for "end users" -- producers, manufacturers, and other companies that are not financial players who used derivatives to hedge against risk sources have said.

U.S. Treasury Assistant Secretary Michael Barr told reporters separately on Monday that Dodd and Lincoln were "very, very close" to a deal.

"... a deal that I think will be a stronger bill, a tougher bill, a bill that brings derivatives trading out of the dark," Barr said after speaking to a gathering of the Independent Community Bankers of America.

(Additional reporting by Ann Saphir and Kevin Drawbaugh; Editing by Tim Dobbyn)