UPDATE 2-Obama admin cool to bank swap-trade spin-off plan

* Lincoln provision not among top Obama goals-official

* White House opposes auto dealer exemption-Farrell
(Recasts with analyst, Barr comments, adds background)

By Kevin Drawbaugh

WASHINGTON, May 26 (BestGrowthStock) – The outlook for a plan to
force banks to spin off their swap-trading desks dimmed on
Wednesday when an Obama administration official made clear it
is not a core Wall Street reform goal for the White House.

The plan — proposed by Democratic Senator Blanche
Lincoln, who faces a reelection challenge — is one of the
most controversial components of a Senate bill approved last
week.

Major banks, whose profits and business structures could
be hit by the Lincoln plan, are lobbying in Congress to kill
it.

For the Obama administration, overhauling financial
regulation is a top priority and involves certain key goals,
but the Lincoln plan is not one of them, Assistant Treasury
Secretary Michael Barr told reporters at a briefing.

“There are other provisions, like the Lincoln provision,
that are not part of that core set of questions, and I think
those are going to get worked through,” Barr told reporters.

When asked if the administration opposes the Lincoln plan,
Barr said: “I think I’ve laid out pretty clearly what the
president’s core objectives are.”

His comments could influence the debate set to get under
way next month in a House-Senate conference committee that
must combine the Senate bill with one approved in December by
the House of Representatives, which excludes the Lincoln
plan.

Analysts have said the Lincoln proposal will likely fade
away as lawmakers combine the two bills.

“Lincoln has little choice but at some point to back off
of her demands” to include her plan in the final bill, policy
analysts Teddy Downey and Chris Krueger said in a report on
Wednesday from investment research firm Concept Capital.

Democratic Representative Barney Frank, who will chair the
House-Senate conference, said on Tuesday he disagreed with
Lincoln’s proposal. She has vowed to put up a fight, however.

LINCOLN CHALLENGED AT HOME

Lincoln, a moderate, faces a run-off election on June 8 in
Arkansas against Democratic Lieutenant Governor Bill Halter.

The House-Senate conference, of which Lincoln is a key
member, is scheduled to get down to work that same week.

President Barack Obama and congressional Democrats want to
tighten bank and capital market regulation to prevent a
recurrence of the 2007-2009 financial crisis that slammed
economies worldwide, triggered massive taxpayers bailouts of
Wall Street giants and unleashed a wave of reform proposals.

A central element of proposed reforms is imposing new
regulations on the unpoliced $615 trillion over-the-counter
derivatives market that includes swaps, such as the credit
default swaps at the core of problems at firms like AIG.

The administration’s core goals include redirecting much
of the swaps market through more accountable channels such as
exchanges, electronic trading platforms and clearinghouses,
with more oversight of dealers and participants.

The OTC derivatives market is dominated by a handful of
major companies, including Goldman Sachs (GS.N: ), JPMorgan
Chase (JPM.N: ), Citigroup (C.N: ) and Bank of America (BAC.N: ).

Wall Street can be expected to push hard for loopholes in
the reform bill as the conference hammers it out, Barr said.

“The lobbying community is not done … We will be
fighting any attempt to weaken the bill,” he said.

Diana Farrell, deputy director of the National Economic
Council, said the administration opposes a Republican proposal
to exempt car dealers from the oversight of a proposed
financial consumer watchdog included in the bill.

“We don’t like carve-outs. We don’t want any carve-outs
… We’re pleased to see it’s not in the Senate bill,” she
said.

The House bill contains a car dealer carve-out; the Senate
bill does not. Before sending its bill to conference, the
Senate approved a non-binding motion from Republican Senator
Sam Brownback asking that conferees include the exemption.

Stock Market Advice

(Reporting by Kevin Drawbaugh; Editing by Jan Paschal)

UPDATE 2-Obama admin cool to bank swap-trade spin-off plan