WASHINGTON Senator Blanche Lincoln, a self-styled "farmer's daughter" facing a tough re-election race in Arkansas, had not been expected to become the latest Democrat to rail against the risky practices of Wall Street.
Lincoln, chairman of the Senate Agriculture Committee, is known for working across party lines on issues, but took Washington by surprise with an aggressive draft bill to be unveiled on Friday that she hopes will force big banks out of the $450 trillion over-the-counter derivatives market.
"My bill will put banks back into the business of banking and prevent future bailouts of Wall Street firms engaging in risky behavior," Lincoln said in a statement.
But three weeks ago, Lincoln had a more measured approach in a speech to the U.S. Chamber of Commerce, which has urged restraint from lawmakers considering financial reforms.
"The swaps market will be regulated, but let me say this: I don't believe in overreaching, or regulation for regulation's sake. We must be surgical with how we regulate," she said.
Lincoln's bill had been expected to take a more moderate tack than those approved by the Senate Banking Committee and the House of Representatives -- bills that need to be reconciled before President Barack Obama can sign reforms into law.
Instead, the draft is tougher, and includes "radical" curbs for banks, according to a Washington-based industry representative following the issue who asked not to be named.
"It's a huge shift," that person said. "I think as much of this is politics as it is trying to get the right policy."
The bill is being closely watched by Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup and Bank of America, which dominate the market.
MISPERCEPTION THAT LINCOLN A LIGHT TOUCH
Derivatives have been blamed for amplifying financial turmoil in 2008 as the world slipped into recession.
Those surprised by the tough bill were "hearing what they wanted to hear," if they expected Lincoln would have a moderate touch on derivatives, a top Lincoln aide said.
"Blanche Lincoln is very much a centrist, has always been, but we're in the midst of a financial catastrophe, so it shouldn't surprise anyone that a centrist ... will see that we have to do some reforms," aide Robert Holifield told Reuters.
The banking restrictions were discussed "conceptually" with Republican staffers but were kept quiet.
"Some ideas, the more they are out there, the more chance that well-paid lobbyists can descend and fight them," said Holifield, who has worked with Lincoln and the top U.S. futures regulator, the Commodity Futures Trading Commission, for 10 years. "We expect that fight will be coming."
NOVEMBER ELECTION LOOMS
Lincoln's tough line on swaps reform could be an electoral blessing, after she came under criticism for supporting the financial bailout and health care reform.
With mid-term elections looming, and one third of Senate seats up for grabs along with all 435 in the House in November, she trails potential Republican opponents, and first must defeat two challengers in the Democratic primary on May 18.
While Lincoln's folksy, deliberative approach has played well in her two-decade career, now voters want action. "They want someone ... to lead them," said Blake Rutherford, a political analyst in Little Rock, Arkansas.
Swaps reform also could allow Democrats to blunt Republican gains in Congress that are forecast to be sizable. Republicans are trying to capitalize on a sluggish economic recovery and fears that health care reform will be a burden on taxpayers.
Saxby Chambliss, senior Republican on the Agriculture Committee, blamed the White House for collapse of negotiations with Lincoln. Chambliss is a frequent partner on Lincoln's proposals and was expected to write a swaps bill with her.
"It seems the administration is more interested in trying to divert attention away from health care by changing the subject as we head into the election season," Chambliss said.
Former congressman Charlie Stenholm said Lincoln had a record of "looking for a sensible solution.
"In this environment, it may be impossible to get bipartisan agreement on anything, even whether the sun is going to rise in the east," said Stenholm, now a private consultant.
CAUGHT IN POLITICAL CROSSFIRE
Lincoln served three terms in the House and then, in 1998, she became the youngest woman elected to the Senate, at age 38. Last fall, she became the first woman to chair the Agriculture Committee, which oversees futures markets.
She attracted flack from Democrats last year when she opposed the public option in the health care reform bill. She supports a Republican move to stop the regulation of greenhouse gases, and also helped block approval of a union lawyer nominated to the National Labor Relations Board.
"This senator is caught in the crossfire between people who think she's not liberal enough and people who think she's not conservative enough," said Frank Rehermann, a California rice farmer, when introducing Lincoln after a February fundraiser.
Lincoln, who grew up on a seventh-generation Arkansas rice farm, often draws on her family roots to explain why she seeks common ground on divisive political issues.
The bill has been hailed by critics of Wall Street like Senator Maria Cantwell, who had urged her to be aggressive.
"As the daughter of a farmer, she knows the difference between farmers legitimately hedging and Wall Street speculators cooking up toxic assets," Cantwell said.
(Additional reporting by Christopher Doering; Editing by Russell Blinch and Walter Bagley)