Brian Beutler June 14, 2010, 2:08 PM

One of President Obama’s most influential advisers has softened his position on derivative reform, suggesting for the first time that he might be amenable to Sen. Blanche Lincoln’s plan to force major financial institutions to spin off their lucrative swaps desks. The development comes as members of Congress who back Lincoln’s plan push to preserve it as part of Wall Street reform legislation. But aides on the Hill who back the plan remain skeptical.

According to the Financial Times, former Fed chairman Paul Volcker has opened somewhat to the Lincoln plan, provided it not ban banks from hedging their own risk, or that of their customers, by trading in derivatives.

Just a month ago, though, Volcker, who chairs Obama’s Economic Recovery Advisory Board, had a fairly cut and dry view: “I am…aware of, and share, concerns about the extensive reach of Senator Lincoln’s proposed amendment,” Volcker wrote in a letter to Senate Banking Committee Chairman Chris Dodd. “[M]y sense is that the understandable concerns about commercial bank trading in derivatives are reasonably dealth with in…your reform bill as presently drafted.”

Experts disagree about what the full impact of Lincoln’s plan as drafted would be.

Last week, Dodd himself, who has long been skeptical of Lincoln’s proposal called it a “strong provision” and said Lincoln was “on the right track,” suggesting it might still be changed.

And that’s why House and Senate aides who back the plan remain worried. They’re concerned the members of Congress negotiating a final bill will seek to keep the language in the bill, but festoon it with enough exceptions and loopholes to undercut its intent.

The conference committee will begin the substantive work of ironing out the final language Tuesday, so we should know what shape the final derivatives regulations will take by week’s end.

Barack Obama, Blanche Lincoln, Chris Dodd, Derivatives , Financial Reform, House of Representatives, Paul Volcker, Senate, Wall Street