Regulators weigh thousands of pleas on Volcker rule Paul Volcker, the former Federal Reserve chairman turned financial reformer, once described lying awake in his bed, "tossing and turning ... thinking whatever we do, the banks will try to game us." He must have been sleeping badly this week. On Monday, banks and market participants filed their final responses to the "Volcker rule," part of wider Dodd-Frank regulatory overhaul that is due to take effect in July. Regulators were bombarded with 16,000 letters - adding thousands of pages to an already hefty pile of paperwork. Bankers and lawyers describe an eleventh-hour flurry of activity to draft the submissions, underscoring the high stakes at play in Wall Street's last-ditch effort to soften the rule. While the Volcker rule - which would ban banks from "proprietary trading" - has already passed into law, regulators are still debating one crucial detail: how exactly to implement it. Banning banks from speculative trading, while also preserving their ability to make markets on behalf of their clients, it turns out, might be easier said than done. Pinning down how to restrict banks from investing in private equity and hedge funds is also proving contentious. Since Mr Volcker first put forth his rule, it has blossomed from a three-page letter to a 298-page proposal on its implementation. Along the way, it has generated thousands of responses from individuals, firms and industry groups, including those filed this week. An initial comment period granting banks three months to reply to the implementation proposal was extended to give firms another 30 days. For some, the extra time was not enough. Banking advisors and lawyers say they worked overtime last weekend, putting finishing touches on letters before they were filed to five separate regulatory authorities before Monday's deadline. "This is a critical piece of legislation," says Glenn Schorr, Nomura banking analyst. There was no extra credit for getting in your homework early. They took every second that they could to make sure the regulators know all the drawbacks. Mr Schorr estimates that the Volcker could knock 20 to 25 per cent off banks" earnings. Banks "would no doubt be able to adapt but it's very disruptive," he says. One lawyer who worked on Volcker submissions says the activity over the weekend mostly involved making sure that letters did not contradict each other. Drafts were sent back and forth between different firms and industry groups to remove any glaring inconsistencies, he says. The real changes happened in the week or two lead-up to the letters. It all got darker and much more aggressive" says the lawyer. People felt they "had nothing to lose," he adds. At least six of the letters included a reference to an unrelated lawsuit successfully brought against the Securities and Exchange Commission - a thinly-veiled threat of possible legal action if the Volcker rule is not changed. For Volcker, the pushback was expected. He responded with a letter of his own, accompanied by some expansive commentary, urging regulators to stand firm against industry lobbying that he says will add layers of complications onto his original idea. Bankers and industry groups say the ultimate aim of the letters is to force a re-proposal of the rule. Regulators are also said to be worried that bundles of letters complaining about the rule - in particular the thorny issue of its application outside the US - could lead to significant changes. There are still a lot of open-ended issues. The industry is claiming, perhaps to some sympathy, that the costs could be quite high in ways that weren't intended," says Kimberley Krawiec, a professor at Duke University School of Law, who has been studying the lobbying efforts around the Volcker rule. She adds: "My prediction is the regulatory agencies will listen to some of these issues." With additional reporting from Telis Demos in New York.