A Senate-House of Representatives conference panel approved a landmark bill on Friday to overhaul financial regulations, working through the night on the thorniest provisions.
The legislation next heads to the full Senate and House where it is expected to win final approval and President Barack Obama could sign it into law before July 4.
Lawmakers agreed to allow banks to trade in-house many types of over-the-counter derivatives, watering down a controversial plan that would have required banks to spin off much of their lucrative swaps dealing desks.
Under the deal, banks can trade in-house foreign exchange and interest rate swaps, gold and silver swaps, and derivatives designed to hedge their own risk.
But banks will need to spin off dealing desks to affiliates to handle agricultural, energy and metals swaps, equity swaps, and uncleared credit default swaps.
Lawmakers neared a breakthrough in their historic rewrite of financial regulations as they agreed to tough new limits on banks' trading activity and floated a compromise on derivatives.
Democrats faced enormous pressure to complete work on the bill in the coming hours, before Obama discusses recovery and reform with leaders of other economic powers at the Group of 20 meeting in Canada.
In the fifteenth hour of a marathon negotiation session, Democrats agreed on a modified version of the so-called "Volcker rule," which would prohibit most trading and investment activity by banks.
It would give regulators little wiggle room to waive the trading ban but would also allow banks to invest up to 3 percent of their tangible equity in hedge funds and private equity funds.
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