Derivatives reform: Gillibrand's office responds

Fending off the scarlet letter of Wall Street: The senator "strongly supports" comprehensive reform

Published April 21, 2010 6:37PM (EDT)

Want to get a Democratic senator's office on the phone in April 2010? Imply that the senator in question is helping Republicans "gut" bank reform. Moments after my last post was published, suggesting that New York Sen. Kirsten Gillibrand was doing Wall Street's bidding by working to weaken derivatives reform, Matt Canter, a communications director for Kirsten Gillibrand, D.-N.Y., called me to emphasize at length that the senator was an "aggressive supporter of comprehensive reform" -- and to educate me in some of the finer aspects of Senate legislative procedure.

Politico had reported that Gillibrand "filed an amendment that would eliminate one of the most controversial elements of the bill -- a proposal to ban banks with federal deposit insurance from also trading derivatives known as swaps, meaning the potential loss of billions of dollars in revenue for large financial firms."

But Canter says that Gillibrand's amendment would not have "stripped" the ban from Sen. Blanche Lincoln's derivatives regulation bill. Instead, Gillibrand's amendment would have called for the Commodity Futures Trading Commission to study the effect the ban on derivatives trading might have on commercial lending, and then would have empowered the Systemic Risk Council set up by the banking reform act to go ahead with the ban, if it was deemed appropriate, without further congressional approval.

More confusingly, Canter said that Gillibrand never had "any specific plans" to actually raise the amendment during the Agricultural Committee's workup of Lincoln's bill today. Filing the amendment was merely a technical step necessary in the event that she had ultimately wanted to bring up the issue during today's workup. But in the final analysis, said Canter, Gillibrand did not raise the amendment, and "supports the package as written."

The back story here is that when Blanche Lincoln delivered her industrial-strength proposal for derivatives regulation on a Friday afternoon last week, she surprised a lot of people -- Democrats, Republicans and Wall Street alike. And who knows, it is certainly possible that preventing the likes of J.P. Morgan Chase and Citigroup and Bank of America from trading derivatives might in some way hamper the flow of credit to commercial borrowers. Maybe the issue could use some more study. But it's also true that the provision in question is sure to be vociferously opposed by the banks as the Lincoln proposal is incorporated into the larger Dodd bank reform bill and the entire process moves forward. So it's worth paying close attention to every legislative maneuver, whether amendments are actually raised or merely filed.

But as it stands now, the Lincoln proposal hasn't quite been "gutted." Yet.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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