Wall Street is re-emerging as a force in Washington as it closesin on one of its biggest wins against regulation since thefinancial crisis.

With must-pass spending legislation making its way through Congress this week,banks seized on an opportunity to attach a measure that would halta planned restriction on derivatives trading they had longopposed. The industry's lobbying extended to the highest levels offinance, with JPMorgan Chase & Co. CEO Jamie Dimon pressinglawmakers to support the change.

Wall Street's success, after four years of struggling topersuade Congress to ease the Dodd-Frank Act, is a precursor tomore fights next year against some of the law's hallmarks: theconsumer protection bureau and stiff oversight of big financialcompanies whose failure could threaten the financial system.

“The Wall Street interests—the big banks—they're back,” saidRichard Durbin of Illinois, the Senate's second-rankingDemocrat.

The $1.1 trillion spending measure cleared its biggest hurdlewhen the House passed it last night and sent it to the Senate forconsideration today.

Banks had modest expectations even under the new RepublicanCongress that will convene in January, a group they presume will bemore receptive to their agenda. Their surprising success this weekmay embolden lenders to seek deeper regulatory changes asRepublicans take control of the Senate from Democrats.

The derivatives provision would let JPMorgan, Citigroup Inc.,Bank of America Corp., and other banks trade almost all swaps indivisions that have government backstops like deposit insurance. Itwould repeal a requirement that some of the trades be pushed out toseparate units, which Wall Street argued would drive up costs forclients and increase risk in the financial system by moving thetrades to firms less regulated than banks.

Lawmakers put the requirement in Dodd-Frank, which was passed in2010 after banks' losses on souring derivative trades spurred ataxpayer bailout of Wall Street in 2008.

The inclusion of the Dodd-Frank changes in the spending billspurred a week-long opposition campaign by Senator Elizabeth Warrenof Massachusetts, House Minority Leader Nancy Pelosi, and otherDemocratic lawmakers. Their news conferences, TV interviews,emergency meetings on Capitol Hill, and pressure from alliesincluding the AFL-CIO labor federation prompted President BarackObama to call lawmakers, urging them to vote for the broader billto avoid a government shutdown.

White House Chief of Staff Denis McDonough told Democraticlawmakers at a caucus meeting last night that the administrationwas late to learn of the swaps provision's inclusion and urged theSenate to remove it, according to a Democratic aide who requestedanonymity to discuss the closed-door session.

The industry's lobbying campaign on the provision gainedmomentum after a move by the Obama administration itself, whichsignaled last year that it was willing to bend on the swaps rule,said a person familiar with the bank's campaign who soughtanonymity to discuss the effort.

At the time, White House officials discussed a deal that wouldhave scuttled the requirement in exchange for Republican supportfor a bill to increase funding for the International Monetary Fund.It ultimately fell through. Republicans and Wall Street, however,took notice: The rule wasn't off-limits to the administration.

The White House didn't immediately provide a comment.

Seeking Compromise

This year, the industry decided to try to broker a similarcompromise, using funding for the Commodity Futures TradingCommission (CFTC) and Securities and Exchange Commission (SEC)instead of the IMF as the carrot for Democrats. The strategy playedout in the Senate and was led by several regional banks, includingPNC Financial Services Group Inc., SunTrust Banks Inc., and FifthThird Bancorp, two people familiar with the matter said.

Those banks, while having tiny amounts of derivatives on theirbooks compared with their Wall Street counterparts, argued that theregulation would increase compliance costs and require them toredirect massive amounts of capital to affiliates.

The regional firms focused their efforts on Senator RichardShelby, an Alabama Republican who's in line to be the next BankingCommittee chairman, and Senator Barbara Mikulski, the MarylandDemocrat who heads the Appropriations Committee. They encouragedcongressional staff to keep the SEC and CFTC informed and find outwhat kind of budget increase the agencies would support.

Little was left to chance. Several months before a deal becamepublic, the Maryland Bankers Association contacted Mikulski'soffice. The group said that the rule affected banks of all sizesand would crimp lending to borrowers, Kathleen Murphy, presidentand chief executive of the association, said in a phone interview.The group reiterated its views to the senator's office in the lastweek, she said.

As the negotiations went down to the wire, Dimon picked up thephone and called senators urging their support for the deal,according to three people with knowledge of the matter.

JPMorgan spokesman Andrew Gray declined to comment.

“I know that the president was whipping and he was supportingthis bill and I know that Jamie Dimon was whipping,” Maxine Watersof California, the top Democrat on the House Financial ServicesCommittee, told reporters yesterday. “That's an oddcombination.”

Spending Negotiations

Meanwhile, Mikulski was one of the members of Congress in chargeof negotiating the broader spending legislation. House Republicanshad earlier this year passed a spending bill in which they inserteda provision undoing the swaps rule without Democratic objection atan appropriations committee hearing. Mikulski took to negotiating a$35 million funding increase for the CFTC in return for theprovision, while trying to fend off other attacks onDodd-Frank.

“She simultaneously knocked down six terrible riders that wouldhave watered down or weakened Dodd-Frank,” according to an e-mailfrom an appropriations committee spokesman.

Wall Street outspent any other industry on the Novemberelection, with employees of securities and investment companies andtheir political action committees contributing $169 million,according to Center for Responsive Politics data. About two-thirdsof the donations went to Republican candidates.

After the record giving on a midterm election, finance-industrylobbyists said they want to make headway on a number of items inthe next Congress, including some that Republican lawmakers failedto get in the spending bill. Those provisions will probably be aheavier lift, as Wall Street faces resistance from a broader swathof Democratic lawmakers, the lobbyists said.

Revisions to Dodd-Frank that were excluded this week includeprohibiting the SEC from writing tough disclosure rules on stockbrokers' conflicts of interest, preventing regulators from imposingstringent regulations on large asset managers, and barring the SECfrom forcing companies to reveal their political contributions,according to a Democratic official with direct knowledge of thenegotiations.

Another measure kept out of the spending bill would have givenCongress authority over the budget of the consumer bureau, anagency long-opposed by banks that was created to oversee mortgagelending and credit cards, the official said. The regulator is nowfunded by the Federal Reserve. Handing lawmakers authority over itsbudget would allow them greater control of the agency.

Next year, the banks' wish list will be even broader. They willbe targeting burdensome regulations on lenders deemed “too big tofail” and the Volcker Rule, which bans Wall Street from makingmarket bets with their own money, lobbyists said.

“In terms of opening up Dodd-Frank, I think that train has leftthe station,” said Wayne Abernathy, executive vice president forfinancial institutions policy at the American Bankers Association.“The problems are piling up and it's becoming embarrassing.”

–With assistance from Robert Schmidt, Kathleen Hunter, HeidiPrzybyla, Jonathan Allen and Erik Wasson in Washington.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.