US Senate Republican calls for strict swaps rules

* Senate vote to start debate set for Monday

* Democrats need at least one Republican backer

* Snowe seen as one of the swing votes

* Snowe skirts most controversial part of Lincoln bill

By Roberta Rampton and Rachelle Younglai

WASHINGTON, April 24 (BestGrowthStock) – A Senate Republican has
called for the “strongest” derivatives rules, signaling that
Democrats may get the votes needed to start debating their
sweeping financial regulation bill on Monday.

Just days before the Senate was due to vote to start
working on Democrats’ legislation, Senator Olympia Snowe said
that strong derivatives regulation goes to the heart of an
effective financial reform bill.

“If we are to effectively regulate the derivatives market,
we must start the Senate floor debate with the strongest
proposal we can craft and defend against the inevitable
attempts to weaken it,” Snowe told Senate Majority Leader Harry
Reid in a letter dated on Friday.

Democrats need to convince at least one of the 41
Republican senators to vote with them in order to start
debating a bill to impose new rules for the financial system.

Snowe and other moderate Republicans such as Susan Collins
are under pressure from the White House to support Democrats’
efforts to overhaul the financial system.

Although Republicans had vowed on Friday to oppose
Democrats’ efforts until the sides were able to reach a
bipartisan agreement, public anger over Wall Street’s taxpayer
bailout and Goldman Sachs’ (GS.N: ) alleged fraud may force
Republicans’ hand. [ID:nN23213361]

The bill written by Senate Banking Chairman Christopher
Dodd would rein in banks, bring new oversight for hedge funds
and derivatives and usher in new rules to protect consumers
from risky financial products.

Dodd and the top Republican on his committee, Richard
Shelby, have been trying to reach an agreement. As of Saturday
mid-afternoon, no real progress had been made, sources said.

Some of the sticking points include how to ensure that
taxpayers are not on the hook to rescue troubled financial
firms such as what happened with AIG (AIG.N: ) and Bank of
America (BAC.N: ).

CLEARINGHOUSES

Senate aides have also been trying to hash out how best to
rein in derivatives trading. The Senate package likely will
require most over-the-counter swaps to move through
clearinghouses to limit the domino effect large, risky trades
can have on the economy.

Less clear is whether a proposal to severely curb big
banks’ participation will remain in the final Senate bill.

Senator Blanche Lincoln, chairman of the Senate Agriculture
Committee, shocked markets with the proposal to effectively bar
banks from the $460 trillion market. Dodd’s derivatives
proposal did not go that far.

In her letter to Reid, Snowe skirts the controversial issue
of requiring banks to spin off their swaps desks. Instead she
pushes for more transparency and said any exemptions to the new
derivative rules must be narrowly constructed.

Lincoln’s proposal has been viewed by many observers as a
bargaining chip that would allow for the bulk of her
derivatives proposal to remain intact — and to score points
with voters ahead of midterm November elections.

“If it weren’t an election year, I would be telling you
… that (the measure) would not survive” into the final Senate
bill, said Joel Telpner, partner with law firm Jones Day in New
York.

“But given that it’s an election year and it’s coming on
the heels of the Goldman situation, maybe it will have more
leg,” he said.
(Editing by Xavier Briand)

US Senate Republican calls for strict swaps rules