Wall Street is poised to win a big victory in its lobbyingcampaign against the Dodd-Frank Act as lawmakers move to repeal aderivatives rule as part of a bill to fund the government.

Congress will vote this week on a bill that lets JPMorgan Chase& Co., Citigroup Inc. and other lenders keep swaps trading inunits with federal backstops. House and Senate negotiators agreedyesterday to give the break along with funding increases for theCommodity Futures Trading Commission and Securities and ExchangeCommission.

The change, which is included in a broader funding bill, hasbeen criticized by Democratic senators including Elizabeth Warrenof Massachusetts and Sherrod Brown of Ohio.

“Middle-class families are still paying a heavy price for thedecisions to weaken the financial cops, leaving Wall Street free toload up on risk,” Warren said in a statement. “Congress should notchip away at important reforms that protect taxpayers and make oureconomy safer.”

Lawmakers included the swaps provision in Dodd-Frank to protecttaxpayers against bank losses after souring derivatives tradesspurred a U.S. rescue of the financial industry in 2008. TheFederal Reserve and Office of the Comptroller of the Currencyprovided a two-year delay in 2013 on the condition that banks takesteps to move swaps to affiliates that don't benefit from federaldeposit insurance and discount borrowing.

JPMorgan and Citigroup both held 99 percent of theirnotional-value derivatives trades in insured banking units,according to OCC data from the second quarter.

The spending plan agreed to by lawmakers will provide $250million for the CFTC, up from $215 million, and $1.5 billion forthe SEC, an increase of $150 million. The spending measure fundsthe agencies through Sept. 30, 2015.

The bill was introduced by appropriations committees in theHouse and Senate and still must be passed by both chambers.

Bank lobbyists have pressured lawmakers for the last four yearsto do away with the swaps rule, saying it doesn't reduce risk tothe financial system and increases complexity. The House has passedlegislation before doing away with the swaps pushout, while theSenate hasn't voted before on the change.

The industry had already won concessions during the drafting ofDodd-Frank in 2010. Instead of requiring that all derivatives betraded in outside affiliates, the law only pushes out equity,commodity and non-cleared credit swaps.

For the CFTC, the agreement would boost funding for an agencythat has warned in recent years that it lacks the budget toadequately enforce new rules for the swaps market.

“The fact is that, without additional resources, our marketscannot be as well supervised; participants cannot be as wellprotected; market transparency and efficiency cannot be as fullyachieved,” CFTC Chairman Timothy Massad said in a Nov. 18speech.

Bloomberg News

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