Wall Street banks will escape billions of dollars in additionalcollateral costs after U.S. regulators softened a rule that wouldhave made their derivatives activities much more expensive.

Two agencies approved a final rule on Thursday that will governhow much money financial firms must set aside in derivatives deals.A key change from recent draft versions of the rule—and the focusof months of debate among regulators—cut in half what the companiesmust post in transactions between their own divisions.

A version proposed last year called for both sides to postcollateral when two affiliates of the same firm deal with oneanother, such as a U.S.-insured bank trading swaps with a U.K.brokerage. The final rule requires that only the brokerage post,cutting collateral demands by tens of billions of dollars acrossthe banking industry. Those costs would still be significantlyhigher than the collateral they currently set aside.