By Kevin G. Hall, McClatchy Washington Bureau (TNS)

WASHINGTON — The rollback this week of a key part of Wall Street regulation adopted after the 2008 financial collapse caught much of Washington by surprise, creating an uproar among liberals who called it a payoff to big banks, threatening to derail a bipartisan budget agreement, and almost shutting down the government.

It was indeed the product of lobbying by the banks, which capped their long campaign this week with personal calls to Congress by the CEO of JPMorgan Chase.

But it should have been no surprise. It was in the works for more than a year. And it was supported by many Democrats. A bill doing just what this week’s provision does actually passed the House Financial Services Committee last year with 22 of 28 Democrats voting for it. The bill passed the entire House of Representatives with broad Democratic support.

“It passed the House, dude! With 70 votes from Dems,” said an aide to a key Democratic senator who spoke on condition of anonymity to talk about the party and the origin of the provision.

Yet when the House this week took up a $1.1 trillion budget bill needed to keep the government open when money ran out Thursday night, liberal Democrats rallied against the provision. They said it was sneaked in by Republicans doing Wall Street’s bidding.

Indeed, the nation’s five largest banks — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Morgan Stanley — desperately wanted the change.

Banks had balked ever since the government moved in the wake of the 2008 financial collapse to cordon off the riskiest of bets made in complex instruments called derivatives, the very same products that turned the financial crisis into a near meltdown of global finance.

At issue are swaps, speculative bets between private parties on whether the price of a stock or a commodity such as oil or corn will move up or down. Under the Section 716 of the Dodd-Frank Act, banks had to push the riskiest 5 percent of this trading into separate corporate entities where they would not be covered by taxpayer-provided protections.

The regulation was offered as an amendment by then-Sen. Blanche Lincoln, an Arkansas Democrat fending off a tough 2010 primary contest from a liberal challenger. The so-called Lincoln Amendment was criticized by Wall Street foes for being a political play that covered too little of the swaps market. Lincoln won the primary but lost the general election.

Since then banks big and small have fought first to delay its implementation and then to roll it back.

The rollback passed the full House of Representatives on Oct. 30, 2013, on a 292-122 vote, with 70 Democrats in support. It was not taken up in the Senate.

The measure was added to a House appropriations bill on June 25 to fund financial regulators, offered as a voice-vote amendment by Rep. Kevin Yoder (R-KS). It was in plain sight all along, just a question of whether it would stay in the final compromise spending bill or not.

While big banks stand to gain the most under the change, several congressional and industry sources privately said that what really helped sell the change was lobbying by regional banks such as Georgia’s SunTrust Banks Inc., Pennsylvania’s PNC Financial Services Group and Ohio’s Fifth Third Bancorp. The rules designed to limit big banks affected them, too, they argued.

The heaviest lift came from the American Bankers Association, which represents banks big and small. It has spent about $6.7 million in lobbying overall this year, according to the donor data culled by OpenSecrets.org.

The nation’s most prominent banker, JPMorgan Chase CEO Jamie Dimon, followed up with personal calls to members of Congress during the negotiations.

It wasn’t just lobbying. Old-fashioned Washington horse-trading greased the wheels.

In exchange for allowing the change Republicans sought, Democrats got significantly more funding for Wall Street cops — the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The rollback disappointed Barney Frank, the retired Massachusetts Democrat who spearheaded the 2010 revamp of financial regulation now called the Dodd-Frank Act. With Republicans taking control of both chambers next year, other parts of his financial revamp could be weakened.

“That’s why it’s so important to have this fight now,” Frank told McClatchy, saying the measure “raises the stakes” on preserving broader financial regulation.

Frank insisted lawmakers slipped it into a larger bill because the public would not support legislation on its own to favor big banks that brought the financial crisis.

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