"They relied on several faulty assumptions, including cherry-picking data points from the bottom of the financial crisis," Merkley said in an e-mail.

Fed Governor Daniel Tarullo repeated the same sentiment during his testimony today, calling the Oliver Wyman study "analytic advocacy."

'Some Liquidity Impact'

"There might be some liquidity impact on the margins," Tarullo said. The impact on markets remaining limited "depends on how well regulators do their job implementing the rule and the degree to how much non-regulated firms pick up where others leave it aside."

Representative Barney Frank, the Massachusetts Democrat who led the Dodd-Frank legislation through the House in 2010 when he was chairman of the committee, questioned the regulators on whether they thought they were able to provide the correct guidelines for distinguishing between prop trading and market making. Tarullo and the others testifying at the hearing all answered affirmatively.

Concerns of Republican committee members and bank lobbyists that regulators would be overzealous in implementation were overblown, Frank said in a phone interview.

"The notion that anything that advances liquidity is a good thing, without any regard to stability, is the problem," said Frank. "Much of this liquidity wasn't for customers, but for the banks to make money for themselves."

'Lawyer and Psychiatrist'

JPMorgan Chief Executive Officer Jamie Dimon, 55, said last week that while he supports the aim of the Volcker rule to prevent excessive risk-taking, regulators have written their proposal too narrowly.

"If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something," Dimon said in an interview with CNBC on Jan. 9.

In their Oct. 11 proposal, the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Securities and Exchange Commission laid out guidelines for how to distinguish between permitted market- making and proprietary trading. The regulation allows banks to use capital to buy and hold securities temporarily in anticipation of finding a match for the trade later, while banning them from betting on asset prices without consideration of client demand.

Burden Of Proof