While many critics claim the financial regulation bill that emerged from Congressional negotiations on Friday will do next to nothing to reduce the chances of another banking crisis, there are some limits on risk taking that could do just that.

The one that strikes me as the toughest and most critical is the so-called Lincoln amendment, which would require banks to separately capitalize their trading in credit default swaps, which were central to the recent crisis.

While the version that emerged from negotiations provided an exemption to the requirement of separately capitalized derivatives trading operations for plain vanilla interest-rate and currency swaps, the provision applies to credit swaps as well as energy and commodity derivatives.

Some analysts think that could put a significant dent into banks' profits. "This bill creates uncertainty regarding the impact to margins from increased price discovery and required capitalization of the subsidiary," analysts for bank research firm Keefe Bruyette Woods wrote in a note published today.

And observers like Jane D'Arista, a former congressional staffer and now a research associate at the Political Economy Research Institute at the University of the University of Massachusetts, thinks this provision is the most important of all of the measures that Congress has proposed to rein in banks' risk, going so far recently as to call the provision "indispensable."

 http://baselinescenario.com/2010/06/10/why-section-716-is-the-indispensable-reform/

And while the conference committee backed away from the complete ban on banks' ability to run hedge and private equity funds that the Senate bill proposed, the limit of 3 percent Tier One capital that negotiators agreed on is pretty severe.

 "This this limit will likely force banks to choose which businesses to continue to allocate capital," said KBW.

Yes, many of us who favored stronger, structural reforms of Wall Street are disappointed that the bank lobby gutted more far reaching change, but it's not accurate to describe the legislation that managed to emerge from the sausage-making so far as utterly worthless.