Rep Frank says deal near on swap desks: report

WASHINGTON (Reuters) - A version of a controversial plan to force banks to put swaps dealing desks in a subsidiary will be part of a final regulatory reform bill being hashed out by lawmakers, Representative Barney Frank said, according to Politico.

Frank, chairman of the joint Senate-House of Representatives committee that is crafting the final Wall Street reform bill, said lawmakers were close to an agreement on how to incorporate Senator Blanche Lincoln's proposal on swaps trading into the bill, Politico, the political news publication, reported on Friday.

"She's clarified it, as she said, and I think we're very close now to an agreement," Frank, a Democrat who is chairman of the House Financial Services Committee, told Politico. "We think that while in principle she's right, there were some technical issues there that had to be straightened out, and I think they're on the way."

Frank's comments were the latest signal of success for Lincoln, a Democrat who is chairman of the Senate Agriculture Committee, in the face of Wall Street opposition. House and Senate negotiators are scheduled to work on derivatives late next week as one of the final steps in writing a compromise bill shaped by the separate regulatory reform bills passed by the House and Senate.

Congressional aides and a person close to the talks told Reuters on Thursday that a deal was being worked out, with terms still under negotiation by lawmakers and the Obama administration.

A key element of the agreement is bolstering related Federal Reserve regulations that would isolate banks from the new swap dealing affiliates called for by the plan, aides said.

Other factors involve government protections for banks whose swaps businesses get into trouble and finding ways for banks to capitalize the new affiliates, senior aides said. Lincoln's bid to win reelection in November in Arkansas is also a factor, they said.

JPMorgan Chase, Bank of America and other commercial banks could be hardest hit if the Lincoln plan is approved, Citigroup analysts said in a report this week.

Major investment banks such as Morgan Stanley and Goldman Sachs, however, would be better positioned to adjust to structural changes that would ensue, the report said.

Lincoln aides were not immediately available to discuss the outlook for the swaps desk spin-off.

Earlier this week, Collin Peterson, chairman of the House Agriculture Committee, said there would be a splitting off of swaps desks in the final bill. White House economic adviser Paul Volcker said clarifications by Lincoln made her plan more palatable.

Rather than force banks to separate themselves entirely from swaps desks, Lincoln would allow the desks to move to an arms-length affiliate of the holding company that owns the bank. A complete spin-off would cost banks billions of dollars in revenue.

Holding companies would see revenue from swaps-dealing affiliates, said congressional aides. The affiliates would need to be separately capitalized from the bank. One of the goals of the regulatory reform is to build financial strength to ward off a repeat in the future of a financial crisis similar to that of 2007-2009.

Over-the-counter derivatives, particularly credit default swaps, which are used as a type of insurance to protect against default of a debt, are widely blamed for having aggravated the credit crisis.

Besides opposition by banks, Lincoln's plan has drawn criticism from business-friendly House Democrats.

(Additional reporting by Tim Ahmann and Kevin Drawbaugh; Editing by Leslie Adler)