More than half of the derivatives-trading business of Goldman Sachs Group Inc., Morgan Stanley and three other large banks could fall largely outside the Dodd-Frank Wall Street Reform and Consumer Protection Act if they succeed in lobbying regulators to exempt their overseas operations, Bloomberg reported.

The debate over the reach of Dodd-Frank has been among the most contentious aspects of the regulatory overhaul led by President Barack Obama after the 2008 credit crisis. The banks have met with regulators, testified to Congress and filed dozens of letters contending that they will suffer a competitive disadvantage if the regulations apply to their foreign arms, Bloomberg said.

Banking lobbyists have been gaining traction with their argument that a combination of U.S. supervision of their holding companies and foreign supervision of their operations abroad is sufficient to oversee risk to the financial system, Bloomberg said.

The banks haven’t publicized how much of their swaps business is overseas, but Bloomberg said it analyzed quarterly statements they file with the Federal Reserve and found that Goldman Sachs had 62 percent of its $134 billion in fair-value derivatives assets and liabilities in non-U.S. branches or subsidiaries for international banking as of Sept. 30, 2011, and 77 percent of Morgan Stanley’s $101 billion was in non-U.S. operations.

If overseas operations aren’t subject to U.S. rules or equivalent regulation by other nations, it could impede the goal of preventing another credit crisis, Darrell Duffie, professor at Stanford University’s Graduate School of Business, told Bloomberg.