09/22/2011 02:56 pm ET Updated Nov 22, 2011

Financial Reform's Volcker Rule May Be Weakened By Regulators: Report

One of the toughest responses to the financial crisis is in danger of being weakened.

The Volcker rule, named after former Federal Reserve Chairman Paul Volcker, aims to prevent excessive risk taking by limiting federally-insured banks from betting their own money on certain types of investments.

But regulators have drafted a new proposal for the Volcker rule that would expand the definition of the types of bets the banks are allowed to make, according to the Wall Street Journal.

The original version of the Volcker rule stipulated that banks could only make specific bets to protect against the risks that banks take for customers, according to the WSJ. The new draft of the rule would allow banks to make more bets by covering risk on a "portfolio basis," which could be broadly defined.

If the Volcker rule gets watered down it would be a victory for banks that have been lobbying since last year to erode the Dodd-Frank financial reforms. Wall Street firms have spent more than $100 million just this year -- more in a push to weaken the new regulations, according to The New York Times.

Congress has already diluted the regulatory reforms in the Dodd-Frank Act in response to pressure from Wall Street lobbyists, by allowing banks to create certain types of derivatives and to make bets for their own profit with up to three percent of their own capital, according to The Atlantic.

Volcker recently said that the new regulations were "nowhere near what we need."

Goldman Sachs has hired experienced lobbyists and former government officials to lobby Washington to weaken the Volcker rule, in order to shield Goldman's profit margins. The proposed law -- if enacted consistently with its mandate -- would cost Goldman at least $3.7 billion in annual revenue, according to one estimate cited by Reuters.

The business practices that the Volcker rule threatens to shutter generated 32 percent of Goldman's pretax profit in 2010, nearly twice the profit from the more traditional investment banking and wealth management sections of the bank combined, according to Bloomberg News.