During last night’s presidential debate, Mitt Romney tried to situate himself as the adversary of big Wall Street banks. He repeatedly invoked the necessity of regulations and criticized the Dodd-Frank financial reform law, which he wants to repeal, as a “kiss” to “New York banks.”
Romney singled out one provision of Dodd-Frank in particular — the ability of regulators to designate certain firms as “systemically signficant” — saying that it means the big banks are “effectively guaranteed by the federal government“:
Dodd-Frank was passed. And it includes within it a number of provisions that I think has some unintended consequences that are harmful to the economy. One is it designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to — to New York banks I’ve ever seen. This is an enormous boon for them. There’ve been 122 community and small banks have closed since Dodd- Frank…Look, we have to have regulation on Wall Street. That’s why I’d have regulation. But I wouldn’t designate five banks as too big to fail and give them a blank check. That’s one of the unintended consequences of Dodd-Frank. It wasn’t thought through properly. We need to get rid of that provision because it’s killing regional and small banks. They’re getting hurt.
This has been a common criticism of Dodd-Frank amongst conservatives, and it was invoked by Paul Ryan before he was named Romney’s vice presidential pick. But it is nowhere near the truth. Being designated as “systemically significant” is not a good thing for the biggest banks, as it means they have to abide by more stringent regulations. If it were a “kiss” for the biggest banks that guaranteed them federal funding, they would be clamoring to be named systemically significant; but they’re doing the exact opposite.
Romney also ignores that Dodd-Frank includes an entirely new process for unwinding failed big banks known as resolution authority. The provision gives the federal government the power to take apart a failing financial behemoth without resorting to ad hoc bailouts. Rep. Barney Frank (D-MA), whose names graces the Dodd-Frank law, called resolution authority a “death panel” for banks.
Ryan’s budget, which was passed by House Republicans, repeals resolution authority, which would ultimately leave the government in the same exact position it found itself in during the financial crisis: unable to do anything to prevent a complete financial meltdown other than rescuing the big banks. But to hear Romney tell it, he has it out for big Wall Street banks.