By Sarah N. Lynch and Douwe Miedema
WASHINGTON (Reuters) - U.S. regulators are considering whether to give banks more time to comply with the Volcker rule, which bans them from gambling with their own money, Federal Reserve Vice-Chair Janet Yellen said in a November 18 letter.
Yellen, nominated by President Barack Obama to lead the Fed, did not say whether an extension would be granted, but pointed out that the law permits regulators to give banks up to three one-year extensions if necessary.
"The Board will ... consider the public interest in granting an extension of the conformance period," Yellen wrote to Mike Crapo, a Republican, responding to follow-up questions posted a hearing into her confirmation.
Regulators are struggling to reach consensus on the complex issues entailed by the rule, a crucial part of the 2010 Dodd-Frank act that was adopted to make investment banks safer and prevent a repeat of the 2008 credit crisis.
Treasury Secretary Jack Lew has told the five regulatory agencies involved to get the work done before the end of the year, and they are now eyeing next month to make a final decision on the 1,000 page rule.
One senior regulator on Wednesday launched an attack on the latest draft, highlighting the discord that still surroundings the rule after several years and hinting at how left-wing politicians regard the law.
"Given what I've read, Volcker isn't worth doing if the language remains as is. I'd oppose it if there were a vote now," Bart Chilton, a member of the Commodity Futures Trading Commission (CFTC), said in a statement.
Chilton is the first regulator to speak publicly about the law. He said he was leaving the CFTC, the nation's derivatives regulator, and will not join further policy votes.
The Fed and the four other regulators who are having a hard time agreeing on a rule that will permit banks to continue engaging in healthy trading, but ban riskier activities such as so-called proprietary trading.
Wall Street banks have long complained that the Volcker rule would eat into their profits and depress client trading, worrying it would hamper legitimate activities that are beneficial to customers, such as market-making.
In the heady days before the financial crisis, large banks ran so-called proprietary trading desks that played financial markets to make money. But those desks have largely disappeared, even ahead of the rule's implementation.
The Fed, the other two banking regulators and the CFTC are eyeing the week of December 9 for a final vote, while the Securities and Exchange Commission is mulling the week of December 16, two people familiar with the matter say.
But the exact schedule is still not known, in part because the SEC's Democratic Commissioner Kara Stein and CFTC Chairman Gary Gensler have both raised concerns about the final draft of the rule, one of those people said.
Stein, who previously worked for Rhode Island Democratic Senator Jack Reed on the Senate Banking Committee, was a key Capitol Hill staffer during the drafting of Dodd-Frank.
She has raised some concerns internally, saying the final rule appears too weak and may not close potential loopholes, the person added.
Chilton also said the rule would allow banks to continue to engage in proprietary trading under the guise of hedging risk, something Congress had explicitly ruled out.
"Congress was clear about what the Volcker Rule was to accomplish. The work product being circulated isn't consistent with Congressional intent nor the letter of the law," he said.
CFTC Chairman Gary Gensler disseminated the text of the rule among his fellow commissioners this week, after he found there was enough consensus among the leaders of the five regulators to pass it on to the next level.
(Editing by Dan Grebler)