Much of the action centers on a provision sponsored by Senator Blanche Lincoln, Democrat of Arkansas, to effectively bar banks from trading derivatives, the complex instruments that have been implicated in the financial system chaos that followed the near collapse of the mortgage market in 2008.
On Monday, Mrs. Lincoln offered to ease some of the toughest elements of her provision, but not enough to assuage Wall Street’s concerns.
Under her latest proposal, banks would have two years to spin off their derivatives arms. A bank holding company could still maintain a derivatives operation — but as a separate affiliate with its own capital, not as part of a commercial bank. In addition, companies that are not major dealers in derivatives would be exempted from her ban.
Even so, the six largest Wall Street banks, which dominate the derivatives trading business, quickly indicated that they would lobby fiercely to defeat the entire provision.
The House-Senate conference committee is to take up a variety of other issues on Tuesday, including the regulation of credit rating agencies, and in coming weeks it will address other flash points with the banks, like limits on credit card fees.
But the likelihood that the legislation will include a relatively tough version of the Volcker Rule on proprietary trading shows how the climate has grown more difficult over the last few months for Wall Street, banks and their lobbyists.
Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee and a leader of the conference process, said last week that House and Senate negotiators had reached “conceptual agreement” on a proposal by Senators Jeff Merkley of Oregon and Carl Levin of Michigan, both Democrats, to expressly forbid banks from trading for their own accounts or from investing in hedge funds or private equity funds.
The House bill, approved in December before Mr. Obama endorsed the ban on proprietary trading, gives the Federal Reserve the right, but not the obligation, to prohibit proprietary trading by a “systemically important” financial company. The Senate bill, approved last month, calls for a study of the effects of a ban on proprietary trading and empowers a systemic risk council to put a ban into effect.
Days after Mr. Obama said in January that he wanted new financial regulations to include a ban on proprietary trading by federally insured banks, Mr. Volcker went to Capitol Hill to explain the concept.
“Every banker I speak with knows very well what ‘proprietary trading’ means and implies,” Mr. Volcker told members of the Senate Banking committee in early February.
Four months later, Congress is still debating what it means.