Blanche Lincoln (D-AR), as head of the Senate Agriculture Committee, has significant input on derivatives legislation, because one of the oldest of the derivatives are commodity futures, things like pork belly futures, which is why it manages the Commodities Futures Trading Commission (CFTC).

The word has been that Lincoln would be almost as much of a road block ad the Republicans on meaningful reform, seeing as how her record is one of doing the bidding of insurance companies and bank.

It turns out that the word is wrong. Lincoln is requiring that derivatives trading be walled off from banking, as well as requiring the trades be done on open exchanges:

Goldman Sachs Group Inc., JPMorgan Chase & Co. and their biggest rivals would be forced to wall off derivatives trading operations from their commercial banks under a measure to be introduced by Senate Agriculture Committee Chairman Blanche Lincoln, a congressional aide said.

Lincoln, an Arkansas Democrat, will propose a “no-bailout provision” as part of an overhaul of derivatives regulation she plans to unveil today, according to the aide, who declined to be identified because the plan isn’t public. The measure aims to ensure banks don’t endanger depositors’ money with risky trading of over-the-counter derivatives, the aide said.

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Lincoln’s provision would bar swaps dealers from taking advantage of the Federal Reserve’s discount lending window, emergency liquidity functions and the Federal Deposit Insurance Corp.’s deposit guarantee. “It eliminates all of the advantages with the affiliation with an insured depository institution, which are profound,” said Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.

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It would also increase protections for clients by requiring swaps dealers to treat them as a fiduciary — obligating them to put customers’ interests ahead of the company’s, the aide said.

The measure requires most over-the-counter derivatives to be traded on exchanges or through clearinghouses. Companies that use swaps to hedge the cost of materials or other non-investment purposes would be exempted from the requirements, the aide said. Like the Volcker rule, which would ban commercial banks from proprietary trading, the wall-off provision would separate derivatives trading from traditional banking activities such as taking deposits and making loans.

Let’s be clear, this is very tough stuff, at least by the standards of the Congress, particularly the Senate.

She actually lambasted the administration for being too soft on banks:

“Proposals that I have seen from the administration have not gone far enough to prevent bailouts of ‘too big to fail institutions’ and could contain loopholes,” Lincoln said. “If we pass reform, it needs to be real reform. My proposal will go further than any other congressional or administration proposal to prevent future bailouts.”

I’m with David Dayen, this all happened within days of her primary challenger, Bill Halter (Reminder, he’s on My Act Blue Page) releasing ads saying that she was too close to the banking industry.

Everyone on Capitol hill know that her proposals will never go beyond a press release, and that behind the scenes, she will continue to do the big banks’ bidding.

This is just electoral politics, and a full court press from her Congressional Colleagues and the White House.