TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/386473
Th e M Rep o RT | 57 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest Frank steps in to defend reform act A forefather of Dodd-Frank stepped up to bat. F ormer Congressman Barney Frank testified before the House of Rep- resentatives Committee on Financial Services, arguing that the Dodd-Frank Wall Street Reform and Consumer Protec- tion Act and the voluminous set of regulations that followed shortly thereafter was a positive for the economy and safeguard- ed the American public from ever having to face an economic downturn the likes of the Great Recession ever again. Frank, a former chairman of the committee before which he testified, was one of five wit- nesses called before the commit- tee to assess the impact of the law from multiple angles. He was the lone witness to testify in favor of the law. In the hearing, which lasted more than three hours, Frank and others faced tough ques- tions on the act's effects on the economy and the value of the changes when compared to the toll it takes on financial services firms ranging from community banks to the largest players in the industry. Frank took the opportu- nity to push back against recent Republican criticisms. For ex- ample, there has been mounting sentiment in recent weeks that the law's process for empowering regulators to designate nonbank financial institutions as "system- atically important" amounts to the government assuring inves- tors that the institutions would be bailed out in the event that they were to collapse. "Every institution which has been threatened with being named has reacted very vio- lently and very negatively," he said in response. "I think that's a very Marxist analysis, but the Marx in question is Chico," he continued, quoting comedian Leonard "Chico" Marx of the Marx Brothers as saying, "'Who are you going to believe, me or your eyes?' Who are you going to believe, your own viewpoint or what financial institutions tell you?" Frank said. Adding to the complexity is the fact that about half of the Dodd-Frank rules have yet to be finalized, creating a regulatory landscape that is murky at best. "The rules will be completed before any major crisis that they are intended to prevent, but later than they should be for the cer- tainty that financial institutions deserve," Frank said. House Republicans have taken advantage of the fourth anniver- sary of the President signing the act into law to highlight what they argue as the unmitigated failure of the act to fix the issues that caused the financial crisis and the overly burdensome regu- lation that it created for financial institutions. They also introduced a 100- page report critical of the law, asserting that the law does not end the prospect of banks being "too big to fail" as advertised. "Dodd-Frank has always been based upon a false premise that somehow deregulation or lack of regulation led us into the crisis," said Jeb Hensarling (R-Texas), chairman of the committee, in his statement to open the hear- ing. "However in the decade leading up to the crisis, studies have shown that the regulatory burden on the financial ser- vices industry actually increased. There were few industries that were more-highly regulated; FDICIA, FIRREA, Sarbanes- Oxley, the list goes on." Republicans argue that un- less the law is repealed, the volume of regulation will only grow larger and more complex. Multiple Republicans at the hearing cited examples such as JPMorgan hiring 10,000 new compliance staff in the past two years to deal with issues stem- ming from the new regulations. "I'm not embarrassed," said Frank in response to the ex- ample. "They were not over- compliant by any means." "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." — Barney Frank