* Letter urges final Volcker rule by this summer
* Senators say rule should be clear and strong
* Banks have complained current proposal is too complicated
By Dave Clarke
WASHINGTON, April 26 (Reuters) - Leading congressional advocates of the Volcker rule crackdown on Wall Street trading on Thursday urged regulators to finish a strong, final rule by this summer despite fierce industry opposition.
A final rule is due by July 21 but several regulators, including Federal Reserve Chairman Ben Bernanke, have said that deadline is unlikely to be met as they sift through the hundreds of letters they received in response to an October proposal.
That proposal has been the subject of intense lobbying by large banks who say it’s too complicated, by critics of Wall Street who want it to have sharp teeth, and by foreign regulators worried about its impact on their financial markets.
Seeking to counter any move to delay or soften the October proposal, lawmakers told regulators in a letter dated April 26: “Now is the time to finish the job.”
“The proposed rule is not perfect, but it should not be delayed or scrapped,” read the letter, which was spearheaded by Senators Carl Levin and Jeff Merkley, the authors of the crackdown, and was signed by 20 of their Democratic colleagues.
They suggested some areas where the proposal could be improved, including holding bank boards of directors more accountable for any violations of the trading restrictions.
The Volcker rule, which has become one of the most controversial parts of the 2010 Dodd-Frank financial oversight law, seeks to add distance between the world of speculative trading and commercial banking.
The proposal bans banks from proprietary trading, or trades that are made solely for their own profit, and limits their investments in hedge funds.
It would mostly affect large banks, such as Goldman Sachs and Morgan Stanley.
The rule was named after former Fed Chairman Paul Volcker, who championed the trading crackdown.
Banks have complained that the October proposal is too complicated and will restrict their ability to do allowable trading because it will be too difficult to differentiate between permitted and banned activities.
They argue, for instance, that their efforts to serve as a middle man between investors and customers looking to raise funds would be curtailed, which would result in higher financing costs for companies and local and state governments.
Supporters of the rule have dismissed these complaints as overblown and say that any hole left in these markets by banks could be filled by other players in financial markets, such as hedge funds.
“These provisions are squarely aimed at the handful of very large banks that, with the implicit subsidy of taxpayers, dramatically expanded their hedge fund-like trading operations in the run-up to the crisis, and subsequently relied on taxpayers to bail them out,” the senators wrote.
The letter notes that there is a two-year transition period starting in July during which issues on how to implement the rule can be addressed.
Last week, to calm Wall Street’s nerves, the Fed made clear that it would use the full two-year time frame to give banks a chance to comply with the crackdown. [ID: nL2E8FJBXP]