WASHINGTON, Oct 30 (Reuters) - The U.S. House of Representatives voted on Wednesday to scale back a much-debated provision of the Dodd-Frank Wall Street reform law, handing bank lobbyists a token victory in their fight against the tougher rules.
Big banks and their allies in Congress have been pushing to undo part of the law that calls for walling off risky derivatives trading by investment banks from government backstops such as deposit insurance. They say the rule is unnecessary and would be expensive for banks.
A total of 70 Democrats joined Republican lawmakers in a vote to scrap the so-called push-out provision for most types of derivative trades, defying the will of the White House, which had called for the rule to remain in place.
"This bill does not expose the taxpayer to any additional risk," said Representative Carolyn Maloney, a New York Democrat who voted to scale back the rule.
Govtrack.us, a website which assigns the likelihood of a bill passing, saw only a 19 percent chance of the bill being enacted before the vote. It is unlikely to make it through the Senate, which is held by Democrats.
Still, the high number of Democrats voting in favor of the bill in the House could make it a bargaining chip toward the end of the congressional session, when last-minute deals are often hammered out between the two parties.
Enacting the bill would be the first major change to Dodd-Frank, as the White House and Senate Democratic leadership have resisted any changes, in part out of concern that would open the door for Republicans to weaken the law.
The push-out provision has been one of the most widely criticized parts of the Dodd-Frank law, having been slipped in by a senator who has since left Congress.
Former Rep. Barney Frank, for whom the law was named, later said he never thought it was necessary, and Federal Reserve Chairman Ben Bernanke has also said it is not clear that setting up separate swaps entities would make banks safer.
And while Obama on Monday did call for the push-out rule to remain in place, he stopped short of threatening to veto the legislation, as he has with other bills.
Still, backers of the pushout idea say it would keep banks from making wild trades while counting on federal support, such as the Fed's discount window, if their trades go wrong.
"This bill would allow Wall Street's too big to fail banks to use insured deposits for their derivatives trading and gambling. That is indefensible," said Dennis Kelleher at Better Markets, a financial reform lobby group.
Following the law's directions, regulators wrote a rule forcing banks to either split swaps trading off into separate arms or else forgo federal support.
But they gave large investment banks such as JPMorgan Chase , Citigroup and Bank of America two extra years to comply with the rule.
(Editing by Bob Burgdorfer)