Sen. Lincoln’s Primary Race Prompts Dems to Postpone Derivatives

Brian Beutler at Talking Points Memo reports that Democrats plan to hold off on altering Sen. Blanche Lincoln’s (D-Ark.) derivatives language until after her primary challenge on Tuesday.

Democrats reportedly want to weaken or strike Lincoln’s provision to force banks to spin off their derivatives desks. Everyone from Sen. Chris Dodd (D-Conn.), who wrote the bill, to Sheila Bair, the head of the Federal Deposit Insurance Co., to the White House, to the banks themselves oppose the measure. Bair and the White House contend that it would actually make derivatives riskier, by allowing banks to move their derivatives tradings operations into subcompanies that might not face strong enough scrutiny. The banks dislike the measure because it promises to undercut their profits. But Lincoln has touted it as demonstrating her populist cred.

The two-term Arkansas senator is facing a challenge from the left on May 18, from Arkansas Lt. Gov. Bill Halter, backed by many of the state’s unions. As of last week, a Mason-Dixon poll showed Lincoln with 44 percent support and Halter with 32 percent. Lincoln needs a majority to avoid an early-June runoff.

Therefore, Democrats will not alter Lincoln’s derivatives language — likely by taking out the derivatives spin-out provision and adding some window-dressing to bolster oversight — until next week. Democrats say the earliest the final vote on the bill will happen is on Wednesday, though that seems optimistic.