ABC News' Rick Klein reports: Sen. Blanche Lincoln surprised some of her colleagues — and many in the financial-services world with her proposal this week that would essentially stop the nation’s largest banks from trading in the market for so-called "derivatives," a lucrative practice that is currently outside the purview of bank regulators. As chairman of the Senate Agriculture Committee, the proposal from Lincoln, D-Ark., is likely to carry significant weight in the Senate, and could be added to the bill proposed by Senate Banking Chairman Chris Dodd, D-Conn. And it positions Lincoln on the populist side of a politically explosive issue, as she gears up for the final stretch of a tight Democratic primary race. On ABC’s “Top Line” today, Lincoln said that the nation’s big banks need to separate their derivatives trading — which she said now operates as a “dark market” — from their other operations.
“We're not asking them to stop. What we're asking is to ensure that the light of day comes to this issue,” Lincoln said. “To date we have not regulated these products. So we're just saying, you know, we know that people have risk, and we know that they need to mitigate that risk. We're just simply asking that Wall Street — that we shine the light on Wall Street and that we're able to be able to regulate where we see this tremendous volume of risk.” Lincoln added: “If they want to do a riskier product that's fine but they're going to need to separate that from the holdings and the deposits from individuals and depositors in their bank.” Republicans — and even, last fall, Treasury Secretary Tim Geithner — have warned that a proposal in the Dodd bill could lead to more bailouts, by creating a “moral hazard” where bank operators wouldn’t be fully accountable for the risks they take.
Lincoln said the Dodd proposal should be strengthened along the lines she’s proposing: “Mine is the only bill that has the teeth that actually will prevent future bailouts, and that's exactly what we do here. We want to ensure that there will not be future bailouts and we do so by requiring that … they separate those entities, and we make sure of that.” We also checked in with Politico’s Jonathan Martin about the Tax Day Tea Party protests, Gov. Charlie Crist’s political predicament and the prospects of bipartisanship on financial regulatory reform.