The Federal Reserve issued a proposal Wednesday giving banks two years to bring investment activities in compliance with the Volcker Rule. The Dodd-Frank Act requires the Fed to define a period of time the banks have to comply with the rule. It prohibits financial institutions from engaging in proprietary trading in securities, derivatives or other instruments and from investing in, sponsoring or having certain relationships with a hedge fund or a private equity fund. The Fed said it consulted with several regulators including the Treasury Department, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. in developing the time frame. JPMorgan Chase (JPM) has already shut down is proprietary commodities trading division, and Morgan Stanley (MS) started to wind down its stake in the FrontPoint Partners hedge fund after the Dodd-Frank act was signed in July. But according to an August analysis from Christopher Whalen of Institutional Risk Analyst, financial firms are still structuring assets based on corporate debt, Treasurys and mortgages, which are exceptions to the Volcker Rule and carry the same risks that led to the previous investment bubble on Wall Street. The Fed is taking comments on the proposal, and it said the two-year period is intended to give these institutions an opportunity to adjust to the rule. Under Dodd-Frank, the Fed must issue roles to implement this period no later than Jan. 21, 2011. Write to Jon Prior.