WASHINGTON (Reuters) - U.S. regulators are unlikely to have the Volcker rule ready by a July deadline, Federal Reserve Chairman Ben Bernanke said on Wednesday of the proposal to curb financial risk-taking that has met opposition from banks.
The Volcker rule cracks down on banks' trading with their own funds for profit. Opponents say it is too restrictive and could drive up the cost of borrowing.
The rule is one of the most controversial aspects of the 2010 Dodd-Frank financial oversight law.
Under the law, the trading and fund investing restrictions are set to go into effect on July 21. Regulators are struggling with how to complete a final version of the Volcker rule.
The financial community griped when regulators in October released a Volcker rule proposal that ran roughly 300 pages and included hundreds of questions for public comment.
"I don't think it'll be ready for July," Bernanke said under questioning during a House Financial Services Committee hearing on Wednesday. "We have about 17,000 comments. We have a lot of very difficult issues to go through."
Bernanke said he did not have an exact date for when a final rule would be completed and that regulators are working as quickly as they can.
He also noted that under the law there is a two-year transition period for banks to fully comply with the crackdown following the July deadline.
"We will make sure that firms have an adequate period of time to adjust their systems and -- and comply with the rule," he said.
When asked if that meant regulators will not strictly enforce the Volcker rule until a final regulation is in place Bernanke said: "Obviously."
Banks and their lobbying groups have complained that it would be unfair to begin enforcing the Volcker rule in July if no final rule has been released or if they are only given weeks to put in place the policies and systems needed to meet the restrictions.
Supporters of the rule counter that banks are trying to buy more time to water down the rule.
The looming deadline has caught the attention of some members of Congress.
Republican Senator Mike Crapo is considering options such as introducing legislation to delay the effective date of the crackdown to a year after a final rule is released, instead of on July 21, his office said.
The Volcker rule would have the most impact on large banks such as Goldman Sachs Group Inc and Morgan Stanley.
Banks have been heavily lobbying regulators to provide as much flexibility as possible for trades that are allowed under the law, such as those that are done to serve the needs of clients and not solely for a bank's profit.
The industry has argued the current proposal will hamper this type of market making, which will cause trading markets to be less liquid and raise borrowing costs.
Supporters of the Volcker rule contend the reform is needed to prevent banks that enjoy federal backstops, such as deposit insurance and access to Fed loans, from taking risks with their own capital that could put taxpayers on the hook for losses.
The rule would also prohibit banks from investing in or sponsoring, beyond a small amount, hedge funds or private equity funds.
(Reporting By Dave Clarke in Washington and Jed Horowitz in New York; Editing by Andrew Hay)