Former Rep. Barney Frank on Wednesday defended the torrent of financial regulations required by his signature legislation, lamenting only that they are not being enacted quickly enough to rein in Wall Street.
Sporting a new white beard and his famous irascible temperament, Frank said regulators charged with implementing the government’s response to the economic crisis are being stifled by a “double whammy” of assaults from the GOP and its business allies.
“The SEC [Securities Exchange Commission] and the CFTC [Commodity Futures Trading Commission] receive vast amounts of comments for each proposed rule, while the Republican House Appropriations Committee starves them of funding,” Frank said.
According to the law firm Davis Polk, which has chronicled the rule-making under Dodd-Frank since its inception, just over half of the nearly 400 rules required by the law have been finalized.
Still, Frank maintained that Dodd-Frank would accomplish its foremost goal: staving off a repeat of the recession.
“The rules will be completed before any major crisis that they are intended to prevent, but later than they should be for the certainty that financial institutions deserve,” Frank said.
Frank was the only one of five witnesses to support the law at the hearing, which featured a steady stream of criticism from Republican lawmakers who said the law has failed to end Washington’s “too big to fail” policies.
Chairman Jeb Hensarling (R-Texas) and others argued that the government’s authority to designate “systematically important” financial institutions amounts to a continuation of those policies.
Meanwhile, they charged, the hundreds of rules have hit smaller institutions disproportionately hard because they lack the compliance staff and resources needed to adjust to the new restrictions.
“Dodd-Frank codified too big to fail into law, and it is now demonstrable four years later that the big banks have gotten bigger, and the small banks have gotten fewer,” Hensarling said.
Frank, seated across from his own portrait hanging on the committee room wall, pushed back on the notion that the “systemically important” label would benefit large firms.
“Every institution that has threatened to be named has reacted very violently and very negatively,” he said “When you ignore that, I think that’s a very Marxist analysis.”
He then noted that he was not referencing socialist Karl Marx, but rather Chico Marx, known for asking, “Well, who you gonna believe, me or your own eyes?”
In his testimony, Frank stressed that Dodd-Frank forbids the use of public money to keep a failing bank or other firm in business.
Witnesses from the financial world complained about the burden of red tape brought from the influx of new rules and said regulatory pain was exacerbated by the uncertainty wrought by vaguely worded and unfinished rules.
Frank did not argue the latter point, acknowledging the lasting uncertainty, which he said would likely be gone in three or for years.
“Transitions are painful,” he said.
Critics said the toll of regulations on large institutions is also evident.
Republican members of the panel repeatedly cited reports indicating that JP Morgan Chase, the country’s biggest bank, plans to hire 3,000 new compliance officers, on top of 7,000 it added last year to grapple with the flood of new regulations.
At the same time, JP Morgan, which has agreed to pay $13 billion to settle accusations of misdeeds that helped precipitate the crisis, has said it would cut its overall number of employees by 5,000, the lawmakers said.
“I’m not embarrassed,” Frank said on response to the growth of the firm’s compliance staff. “They were not overcompliant by any means.”
Democrats on the panel sought to defend Frank and his namesake law from the flood of GOP criticism.
Rep. Michael Capuano (D-Mass.) said Dodd-Frank has succeeded at containing the crisis and chided his colleagues for spouting worn out “speaking points,” rather than engaging in any productive effort to address legitimate problems that linger.
“We need to light candles at the altars of outside ideological think tanks,” Capuano said.
But the feisty Frank, no stranger to such rhetoric, at times appeared to revel in the sparring, repeatedly interrupting his former colleagues and cracking jokes, both at their expense and his own.
He needled his GOP rivals over Dodd-Frank’s establishment of a consumer agency that, to the frustration of Republicans, is not funded through congressional appropriations.
“I am proud of the fact that we insulated the Consumer Financial Protection Bureau from strangulation by nonappropriation that has happened to the CFTC,” he said.
Still, Frank said he did not regret leaving his old job, or the swarm of reporters that surrounded him after the hearing ended.
Asked by a colleague whether he missed it all, he responded, “Uh, no.”
Updated at 8:31 p.m.