Wall Street may still escape two of the harshest elements of Washington's reform efforts. The two measures, included in the Senate bill passed last week, take direct aim at some of the more risky -- and profitable -- parts of banks' business. One proposal would require financial firms to spin off their trading desks that deal in derivatives. The other, would ban banks from wagering with the firm's own money, what the industry calls "proprietary trading." Firms would also be restricted from investing in or sponsoring private-equity funds or hedge funds. The restrictions, if included in the final bill, would hit bank profits.
As the bill now moves to negotiations between key leaders of both the Senate and the House, there is a growing belief that both those proposals run the risk of getting derailed. Experts believe that the amendment aimed at regulating derivatives, will be left on the cutting-room floor or watered down substantially. Both the White House, as well as most Republicans, have come out strongly against the proposal, partly out of fear of what kinds of unintended consequences the new rule could have. Lawmakers already missed an opportunity to strengthen the proposal after choosing not to vote on an amendment which would prevent banks from trading for their own benefit rather than for the sake of their customers. Experts suggest that the Senate bill does not do a good job of explicitly defining what businesses banks should, and should not be involved in, positioning the topic as a subject of intense debate among lawmakers.
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