Brian Beutler June 24, 2010, 10:45 AM

Today is a pivotal day for Wall Street. Billions of dollars and a tremendous amount of risky trading are on the line in what are perhaps the final hours of negotiations over financial reform.

House and Senate conferees will soon determine whether two of the most important pieces of the legislation are as robust as reformers say they need to be, or whether big banks and other industries prevail in their push for loopholes, carve outs, and other exemptions.

Yesterday, House participants in the conference committee laid down an offer—a package of proposed tweaks—to the far-reaching section of the Senate bill dealing with derivative regulations. They seek a host of goodies for end-users (businesses and industries that trade in derivatives to hedge their risk) who want to be exempt from new transparency rules. But they don’t propose any changes to the most controversial part of the bill: a provision, authored by Sen. Blanche Lincoln (D-AR) that would require mega-financial firms to break off their derivatives trading desks, and house them in affiliated businesses, where they won’t be federally insured against failure.

Reformers are excited about that plan, but it’s not by any means etched in stone. There remains tremendous resistance to the measure among House Democrats, particularly members of the New Democrat Coalition, and of the New York delegation, many of whom are making a lot of noise in opposition. But the House bill didn’t have a corresponding section in its bill, and as such House negotiators have their hands tied.

An open question, then, is: What happens if this creates a vote count problem for Nancy Pelosi? The arcane rules of the conference committee allow negotiators on the Senate side to make a counteroffer to the House, and in that counteroffer they could gut, or eliminate, the Lincoln provision, but Lincoln is reportedly refusing to budge, threatening to tie the bill up in the conference committee indefinitely. House and Senate conferees could ping pong counteroffers back and forth over and over, but eventually somebody will have to blink.

And that’s just derivatives.

As I reported last night, House and Senate staff are finalizing an offer based on a proposal originally authored by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR), to limit speculation at big banks and other financial firms—a variant of the Volcker rule. And it looks like they’ll be including a loophole demanded by Sen. Scott Brown (R-MA), which could—depending on how it’s written—undermine the intent of the rule itself.

This is deeply complicated stuff, but the stakes are tremendous. Check back for updates throughout the day.

Blanche Lincoln, Carl Levin, Derivatives , Financial Reform, Jeff Merkley , Paul Volcker, Scott Brown, Volcker, Volcker Rule, Wall Street