Former Congressman Barney Frank testified before the House of Representatives Committee on Financial Services on Wednesday, arguing that the Dodd-Frank Wall Street Reform and Consumer Protection Act and the voluminous set of regulations that followed shortly thereafter was a positive for the economy and safeguarded the American public from ever having to face an economic down turn the likes of the great recession ever again.
Frank, a former chairman of the committee he now sat in front of, was one of five witnesses called before the committee to assess the impact of the law from multiple angles. He was the lone witness to testify in favor of the law.
In the more than three hour long hearing, Frank and others faced tough questions on the effect that the act has had on the economy and the value of the changes when compared with the toll it takes on financial services firms ranging from community banks to the largest players in the industry.
Frank took the opportunity to push back against recent Republican criticisms. For example, there has been mounting sentiment in recent weeks that the law's process for empowering regulators to designate nonbank financial institutions as "systematically important" amounts to the government assuring investors 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 violently 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 certainty that financial institutions deserve," Frank said.
House Republicans have taken advantage of the four year anniversary 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 regulation that it created for financial institutions.
On Monday, House Republicans 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 on 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 hearing. "However in the decade leading up to the crisis, studies have shown that the regulatory burden on the financial services industry actually increased. There were few industries that were more-highly regulated; FDICIA, FIRREA, Sarbanes-Oxley, the list goes on."
Republicans argue that unless 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 stemming from the new regulations.
"I'm not embarrassed," said Frank in response to the example. "They were not over-compliant by any means."