Bank lobbyists and their defenders in Congress have argued that there’s no need for Section 716, the part of the derivatives title that forced the big banks to spin off their swaps trading desks into separately capitalized subsidiaries, is redundant and irrelevant, because a strengthened Volcker rule would accomplish the same goals. Never mind that a group of New Democrats are trying to kill the Volcker rule, too. But this argument, that Section 716 could go because the Volcker rule covers things, never made sense to me. Now, we know that it doesn’t make sense to the two leading lawmakers pushing the Volcker rule, either.

On a conference call with Americans for Financial Reform, Sens. Carl Levin and Jeff Merkley, who put together the Merkley-Levin amendment to strengthen the Volcker rule by affirmatively banning proprietary trading from banks, both disagreed with this idea that their amendment trumps Section 716. “I think we go about the same object in different ways,” said Levin, speaking of his measure and Blanche Lincoln’s derivatives title. “It’s not one or the other… I would hope that both can be accommodated.”

Merkley agreed, saying that Lincoln’s approach covered the particular risk in derivatives that she felt needed to be addressed specifically. “We are saying that the risks taken by a bank when you are investing your own money put the whole bank holding company at risk,” he said. He basically said that the two provisions attack separate parts of the problem. The fact that the two top lawmakers pressing for the Volcker rule don’t agree with the notion that the Volcker rule trumps Section 716 is pretty powerful. You can add to that yet another Federal Reserve Bank regional President, James Bullard of the St. Louis Fed, supporting Section 716.

FDL News asked the Senators whether they have had any discussions with the New Democrats, who are trying to weaken the Merkley-Levin amendment’s inclusion in the final bill. Levin said he did not have any discussions with House members because “it would be important that the House colleagues talk to them.” He said he would be open to that discussion, to explain the importance of his amendment, but he has not initiated those discussions. Merkley didn’t even know fully about the initiative from the New Dems until asked the question, but said “I’ll be looking into it.”

The Merkley-Levin amendment has three parts. It would ensure banks would not be involved in proprietary trading, it allows regulators to put higher capital requirements on financial companies that become systemically significant, and it seeks to stop the conflict of interest of banks taking out bets against the securities they sell to investors. “Goldman Sachs were their own client, without letting other side of the transaction know,” said Sen. Levin. “They picked the assets in the securities, then sold the securities, then heavily bet against their own clients. That can’t happen again.”

Merkley and Levin both sounded optimistic about their position. “We feel that Rep. Frank and the House side are supportive, as well as the Senate,” Merkley said. “We’ve got to hold off this army of lobbyists doing everything they can to knock this out at the last minute.” Sen. Levin also said he “felt good” about the measure going into the home stretch. Negotiators in the conference committee have talked about a “conceptual deal” of strengthening the Volcker rule in the Senate bill so that it offers more than regulator discretion.