With trading revenue estimated to be over $28 billion, government regulations proposed by the Democrats could cut deeply into this lucrative business, causing banks to not only lose revenue, but continue to maintain high risk in spite of the regulation.

In other words, revenue and profits would plummet while risk stayed at its current levels in relationship to trading.

The proposed bill would mandate that the most actively traded derivatives be moved to trading platforms or exchanges, increase capital reserves on derivative trades and keep swaps trading desks at commercial banks separate from others.

While all of the $28 billion in revenue generated by the above banks may not all be at risk, a significant portion could be, and that would grow as banks increase their derivatives business.

Consequently, the cost of protecting debt at these giant institutions rose as investors are increasingly concerned about that as legislation moves forward. Swaps for all the banks mentioned above have been rising.

A credit swap is used to protect against defaulted debt, and pays the buyer the face value if the obligations of the borrower aren’t met. That’s minus the value of the actual debt defaulted on.

So the proposed legislation is already making it more costly for banks to do business, and when taking into consideration trading has been what has driven the revenues of the company while other segments suffer, it could be a disaster if legislation is passed which dramatically moves one of the more lucrative businesses the banks engage in.

The proposed measure will get a test vote today to see where it stands.