NEW YORK ( TheStreet) -- Uh, better late than never?

A report by Bloomberg News Tuesday points out that it could take up to 12 years before banks like Citigroup ( C), Goldman Sachs ( GS), Bank of America ( BAC)and JPMorgan Chase ( JPM) spin off their internal hedge funds and private equity units.

Provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act will require banks that invest their own capital in private equity and hedge funds to reduce that total to no more than 3%. The rules are a watered-down version of proposals initially unveiled by President Obama earlier this year, named after 82 year-old Obama adviser and former Fed Chairman Paul Volcker.

Though the Volcker rules take effect in July 2012, compliance would not be required for two more years. Then there is a three-year extension period, plus another five years for "illiquid" funds, such as private equity or real estate, to get sorted out.

The lengthy timeline for implementation of the rule is just one more example of how the much-hyped financial reform legislation is much softer on big banks than the publicity around it would suggest.

Probably the most feared provision in Dodd-Frank would have forced banks to give up the bulk of their derivatives operations. However, many derivatives products were excluded from the mandate, and banks will still be able to trade others out of affiliated entities.

Though bank stocks have traded off in recent weeks, partly on fears over the legislation, they rallied on Friday after the House and Senate reached agreement on a bill. The bill still requires a final vote in Congress before it gets sent to President Obama, and the death of Robert Byrd (D., W. Va.), a supporter of the bill, has complicated matters. Still, last minute haggling between Congress and the Obama administration to ensure the bill's passage is not expected to affect it substantially.

-- Written by Dan Freed in New York.

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