UPDATE 1-US Senate draft: banks must spin off swaps desks

* Lincoln bill would regulate forex swaps, forwards

* Banks must spin off swaps desks or forgo Fed privileges

* No U.S. bailouts of swaps entities

* Lincoln swaps reforms would be merged into Dodd bill
(Adds forex swaps, forwards also regulated; new throughout)

By Charles Abbott

WASHINGTON, April 14 (BestGrowthStock) – The derivatives reform bill
being written by Senate Agriculture Chairman Blanche Lincoln
would bar federal bailouts of swaps dealers and buyers and it
would bring foreign exchange swaps and forwards under federal

It also would require banks to spin off their swaps desks
or give up federal deposit insurance and support by the Federal
Reserve, according to a summary on Wednesday.

Lincoln aimed to unveil the bill by Friday at the latest.
It would stand as the most aggressive package for swaps
regulation in Congress. It would require many over-the-counter
derivatives to be traded on regulated platforms and to go
through market-stabilizing clearinghouses.

If approved by the Agriculture Committee, the package is
expected to become part of a financial regulatory reform bill
already cleared for Senate debate by the Banking Committee. It
puts the Senate in position to propose stricter swaps rules
than the House. The reforms could cut into bank and dealer

Research and advisory firm TABB Group estimates the top 20
dealers generate around $40 billion annually from
over-the-counter derivatives, excluding credit default swaps.

A handful of banks are leading dealers in swaps.

According to a committee summary, Lincoln would:

–Bar a bailout of any part of the swaps network, from
dealers and major participants to the exchanges the list swaps
and the clearinghouses that guarantee payment on the deals.

–Require banks to spin off their swap desks or not have
access to any federal assistance, such as deposit insurance or
access to the Federal Reserve discount window.

–Regulate foreign exchanges swaps and foreign exchange
forwards. Earlier reform plans did not call for regulation of

–Impose a fiduciary responsibility on swaps dealers in
dealings with governmental bodies and pension plans. Regulators
would have power to act against abusive swaps.

The summary followed an outline by Lincoln on Tuesday of
her reform goals.

She would require reporting of all trades in the $450
trillion swaps market and require high-volume standardized
transactions to be traded on regulated platforms and to go
through clearinghouses.

“Systemically important institutions” would be required to
submit high-volume standardized contracts to central clearing.

In addition, Lincoln would allow only “a narrow exemption”
from clearing for nonfinancial “end users,” who range from
utilities and airlines to manufacturers, who use swaps to
guarantee a supply of materials and lock in their price.
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(Reporting by Charles Abbott; Editing by Bernard Orr)

UPDATE 1-US Senate draft: banks must spin off swaps desks