The proposal that would essentially force banks to separate swaps trading units from depository institutions has been the subject of a lot of last-minute wheeling and dealing. For now, it looks like the industry has succeeded in watering down the proposed law, which is associated with Sen. Blanche Lincoln.

Bloomberg reports that separating derivatives trading from commercial banking most will affect Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM). JPMorgan had nearly all of its $142 billion in current value derivatives holdings within the bank in the first quarter, while Citigroup had 89 percent of $112 billion within its bank.

Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) have small commercial banking footprints, and already conduct most of their derivatives trading business outside of their depositary units. Morgan Stanley indeed kept just over one percent of its derivatives holdings in its bank in the first quarter, Goldman Sachs and Bank of America (via Merrill Lynch) were at about 33 each in the first quarter.

How hard would it be to establish these units beyond the commercial bank? It seems very doable, but it may entail raised costs, as its always cheaper form a credit point of view when you have deposits backing the business.

For more:
- here's the Bloomberg article

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