REFILE-UPDATE 2-US Senate bill takes tough line on banks, swaps

* Bill would require banks to spin off swaps desks

* Goldman charges an example of why reform needed: Lincoln

* Bill would allow exemptions for commercial end users

* It’s up to Congress, failure is not an option – Chilton
(Refiling to fix link analysis)
(Adds details from bill, CFTC’s Chilton’s comments)

By Roberta Rampton and Christopher Doering

WASHINGTON, April 16 (BestGrowthStock) – Senator Blanche Lincoln on
Friday unveiled a long-awaited draft bill to regulate the $450
trillion over-the-counter derivatives market, taking a tougher
tack against big banks than the Senate Banking Committee or
House bills on the issue.

The bill, which would require banks to spin off swaps desks
if they are protected by federal deposit insurance or access
the Federal Reserve discount window, came on the same day the
government leveled a major fraud charge against U.S. swaps
dealer Goldman Sachs Group Inc (GS.N: ).

“This is another example of how risky Wall Street behavior
puts our nation’s financial system in peril and further
illustrates the need for the strong reform that my legislation
provides,” Lincoln, chairman of the Senate Agriculture
Committee, said of the fraud charges filed against Goldman
Sachs in a statement provided to Reuters.

Last month Lincoln had outlined what observers predicted
would be a lighter approach than other bills proposed by the
Senate Banking Committee and passed by the U.S. House. Her
committee has jurisdiction over futures markets.

But she surprised the market with a crackdown. Derivatives
players were closely watching for the detailed language in the
bill to gauge its impact and chances for success.

“My legislation reigns in this risky behavior by ending the
days of backroom deals, providing 100 percent transparency to
the derivatives market, putting an end to ‘too big to fail’ and
preventing future bailouts,” Lincoln said.
LINK: bill summary
SNAP ANALYSIS: Goldman charges give lift bill [ID:nN16147491]
FACTBOX: Lincoln outlines strong swaps reform [ID:nN15228546]
NEWSMAKER-Farmer’s daughter takes on Wall St [ID:nN16135558]
ANALYSIS: Swaps proposal to cost banks [ID:nN15207829]

The U.S. Securities and Exchange Commission charged Goldman
Sachs with fraud for trade of a credit derivative that it said
cost investors more than $1 billion — a charge expected to
amplify calls for financial reforms. [ID:nN16121493]

Goldman Sachs said the charges are unfounded and it would
fight them. [ID:nASA008CO]

Lincoln’s bill would require most swaps to trade on
regulated exchanges and pass through clearinghouses. The
336-page draft exempts commercial end users from mandatory swap
clearing while prohibiting financial entities from opting out.

The draft also bans federal assistance, including federal
deposit insurance and access to the Federal Reserve discount
window, to swaps entities in connection with their trading in
swaps or securities-based swaps. They would be required to spin
off their swap desk or lose the support.

It also allows the Commodity Futures Trading Commission,
which overseas the futures markets, to impose position limits
on swaps that perform or affect a significant price discovery
function in the market.

CFTC Commissioner Bart Chilton, who has spoken out in favor
of boosting oversight of the financial markets, said the draft
provided broader oversight for so-called dark markets and
“gives us the tools we need to lay the hammer down on
wrongdoers, if necessary.”

“Now it’s up to Congress — work through the process, do it
quickly, and get a bill in front of the president for his
signature. It’s really pretty simple. Failure is not an
option,” he said.

Stock Market Report

(Additional reporting by Charles Abbott; Editing by Walter

REFILE-UPDATE 2-US Senate bill takes tough line on banks, swaps