U.S. financial firms are headed into a two-year limbo period as regulators fill in the blanks left in the massive reform legislation, St. Louis Federal Reserve Bank President James Bullard said.
Bullard said now obscure provisions could end up hitting Wall Street firms the hardest, and other ones may never get picked up.
The banks just won't know until regulators start putting pen to paper, he said.
"I think we're in for a long period of maybe up to two years where everyone's going to be very anxious to find out how things are going to be interpreted exactly," Bullard told Reuters in an interview.
As an example, Bullard cited the Federal Reserve Act, the 1913 law that created the central bank system. It has been subject to multiple interpretations over decades, giving the Fed latitude to redefine its role.
Early on Friday morning, lawmakers reached agreement on the financial reform bill after a marathon 21-hour negotiating session. The House of Representatives and Senate are expected to finalize the bill as early as next week, with hopes of President Barack Obama signing it into law by July 4.
Bullard gained some attention late in the reform process when he backed a provision from Democratic Senator Blanche Lincoln that would force banks to spin off their swaps dealing desks.
Fed Chairman Ben Bernanke had expressed reservations about the proposal.
The so-called Lincoln provision and the Volcker rule that would limit banks' proprietary trading were promoted by lawmakers as ways to reduce the chance of another deep financial crisis.
Bullard praised lawmakers' efforts but said much of it is "guesses."
"I think there's only so much you can get out of a piece of legislation because the truth is...we don't fully understand the financial crisis," Bullard said.
"The things that are in the bill are some guesses -- here are some directions we can go in to try to improve things. But I don't think anybody would suggest OK, we will never have another financial crisis."
Bullard said the aim of the bill is to better identify risk and get at least some of it out of the system.
But he said the cloud of the unknown will be over Wall Street for months, if not years.
Over that time, banks' ability to make decisions about their investments, acquisitions and business lines will be restrained.
"They're going to be very anxious to know, 'How are you actually going to implement this provision because it's affecting my decisions,'" Bullard said.
"I think we're in for a long period of that kind of question being asked."