Wall Street’s success in using the year-end spending bill to weaken a provision of the 2010 financial reform law shows how it plans to wield its clout in the months ahead — slowly and methodically, piece by piece, leveraging the legislative process.

But the sudden uprising by liberals led by Sen. Elizabeth Warren (D-Mass.) also showed that Wall Street’s toxic reputation will continue to dog its efforts in Congress.


Liberal Democrats almost sank the budget deal because it included a provision to roll back a section of the Dodd-Frank law that big banks have been plotting to get rid of for years.

“Who does Congress work for?” Warren (D-Mass.) said during a floor speech this week. “Does it work for the millionaires, the billionaires, the giant companies with their armies of lobbyists and lawyers? Or does it work for all of us.”

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The opposition was as much about the policy in question as it was about preventing Wall Street from establishing a legislative blueprint for chipping away at Dodd-Frank one provision at a time.

The language weakening restrictions on certain risky derivatives trading was included in a massive spending bill needed to keep the government open. While Senate Democratic leaders and the White House opposed its inclusion, they were willing to swallow it to get the budget deal done. Liberal lawmakers and their outside allies were not.

“Unless the White House draws the line and says that it’s not going to be blackmailed into making regulatory changes in these so-called ‘must pass’ bills, then this is going to be the playbook for the next two years,” said Americans for Financial Reform Policy Director Marcus Stanley, whose group urged lawmakers to oppose the bill. “They’re just going to get rolled over and over again.”

Nonetheless, the banks prevailed, showing that when it comes to rolling back Dodd-Frank, the financial-services industry is willing to play the long game. The House passed the bill on Thursday and the Senate is expected to clear it this week.

The Dodd-Frank provision in question — the so-called swaps pushout rule — has been controversial since it was first put forward by former Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) and big banks for years have worked to get rid of it or to at least water down its impact.

The pushout rule bans banks from making certain risky derivatives trades in units backstopped by a government guarantee and requires them to move those parts of their operation to separate affiliates.

The banking industry for years has railed against this section of the law as impractical and ill-conceived, but advocates of tougher regulation say it is a necessary check on Wall Street banks’ penchant for taking big risks in the parts of their operations that enjoy government backstops, such as deposit insurance.

Wall Street’s strategy toward weakening the pushout restrictions has involved slowly building bipartisan support. Wall Street lobbyists worked with lawmakers on a standalone House bill, touting its vote tallies as evidence the change has ample support. Last year 70 Democrats voted in favor of a bill that would weaken the provision.

This year, however, the focus shifted to working the issue more through the annual appropriations process, where must-pass bills can help carry policy provisions into law.

The industry’s first victory occurred in June when Rep. Kevin Yoder (R-Kan.) offered an amendment that was adopted by the House Appropriations Committee.

He described it as a needed fix that would help bank customers, like energy and agriculture companies, that use swaps to hedge their risks.

“This is about the farmer in your district who wants to get a loan,” he told the panel.

But even then the seeds of the fight to come were apparent as several Democrats spoke against the amendment, questioning what place it had in a spending bill.

“I’d like to know who is really behind this, who has enough power to try and bring this before this committee,” said Rep. Marcy Kaptur (D-Ohio). “I have some imaginations of who that might be.”

Most banking lobbyists this week denied having much to do with Yoder’s amendment, saying they were focusing more on the House and Senate banking panels.

But one lobbyist who declined to be named acknowledged working with Republicans on the issue.

“The policy is good and we did all the things in the process that we should do,” the lobbyist said. “We went through the authorizers. When that got to a certain point, we moved to appropriations.”

The provision received little attention and easily made it through the House with no amendments being offered to strip it from the bill.

Then in September industry lobbyists began intensifying their focus on appropriators, according to a person involved in the effort, and after the election “there was a little more urgency.” The lobbying coalition involved individual banks as well trade associations.

Several lobbyists involved in the talks said one key to getting appropriators behind the language during final negotiations was that in recent months regional banks — such as PNC, Fifth Third and SunTrust — began to be more vocal about wanting the pushout provision changed.

This gave the industry a more sympathetic face to present to lawmakers than the big Wall Street banks, such JPMorgan Chase and Citigroup, which were blamed for causing the 2008 financial crisis.

“I think when the regionals got motivated on this issue this year, I think candidly that elevated its importance with a lot of members,” said a lobbyist involved in the discussions.

Banking officials also said that recent comments by a key Federal Reserve official helped them boost their case with lawmakers.

Fed officials, including former Chairman Ben Bernanke, have never been shy about expressing their concerns with the pushout provision, arguing it is difficult to implement and won’t necessarily make the financial system safer on its own.

But last month the Fed’s top lawyer delivered a particularly blunt critique that proved golden to the industry.

“You can tell that was written at 2:30 in the morning and so that needs to be I think revisited just to make sense of it,” Federal Reserve General Counsel Scott Alvarez said at an American Bar Association conference in Washington.

All that was left was for the provision to survive the horse trading between House and Senate appropriators during final budget talks.

During these negotiations with House Appropriations Chairman Hal Rogers (R-Ky.), Barbara Mikulski (D-Md.), his Senate counterpart, agreed to keep the provision in exchange for more funding for the Commodity Futures Trading Commission and the Securities and Exchange Commission, according to aides.

Officials at both agencies have complained they are woefully underfunded and it is compromising their ability to carry out their Dodd-Frank responsibilities and to effectively police financial markets.

The fiscal 2015 spending package would increase the CFTC budget by $35 million to $250 million and the SEC’s budget by $150 million to $1.5 billion.

Supporters of the agencies said these increases are piddling and hardly merit the trade off.

“This policy rider is masked by a meager increase in the CFTC’s budget,” Senate Agriculture Chairman Debbie Stabenow (D-Mich.) said.

But Mikulski countered her critics on Thursday night: “We faced 98 riders, some of which were highly controversial,” she said on the Senate floor. “We did the best we could with them.”

In a sign of the importance of the issue to Wall Street banks, JPMorgan Chief Executive Jamie Dimon telephoned lawmakers on Thursday urging them to support passage of the spending bill, according to a person familiar with the calls.

“I think after the president and Jamie Dimon started calling, some people gave in,” Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee who voted against the bill, said after the vote.

Some Democrats and the White House highlighted provisions contained in the House passed bill that were stripped, such as a change to how the Consumer Financial Protection Bureau is funded, as a way of justifying the inclusion of the pushout language.

But Dodd-Frank supporters warned this approach will only lead a slow and steady erosion of the law.

“This is an absolute outrage,” former Rep. Barney Frank (D-Mass.), the law’s namesake, said of the deal. “This is a road map for stealth unwinding of financial reform.”

Zachary Warmbrodt and Patrick Temple-West contributed to this story

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