NEWTON, MA – Congressman Barney Frank today issued the following statement in response to recent inaccurate claims by Mitt Romney about the Wall Street Reform and Consumer Protection Act. During the Presidential debate on Wednesday, Romney asserted that the financial reform law “designates a number of banks as too big to fail, and they're effectively guaranteed by the federal government.” Romney also claimed that “banks are reluctant to make loans” because of a provision of the law which calls for a rule on minimum standards for mortgages.
Frank shows that both claims are completely false.
I understand the dilemma Mitt Romney faces in trying to reconcile his opposition to the Wall Street Reform and Consumer Protection Act with the fact that the law is understandably very popular with the American public. Mr. Romney has asserted his opposition to the law in order to win the Republican nomination in a primary contest of extreme conservatism. But in trying to find ways to justify his call for repeal of the law, he totally misrepresented the two provisions he described.
The law effectively prohibits the kind of irresponsible mortgages that precipitated the financial crisis. The general principle is clear – home mortgage loans should not be made to people who are not going to pay them back. To reinforce this point, the law establishes the concept of Qualified Mortgages and provides that if a home mortgage fails to satisfy these minimum conditions, it cannot be presumed to meet that overarching “ability to repay” requirement. It does not spell this out in detail in the text of the bill because this is a concept that should be subject to real world experience. But exactly what specific terms should be included is a matter to be determined after getting input from all segments of the public – buyers, sellers, realtors, lenders, builders, etc. And it is important that as we go forward, we are able to alter these terms as conditions in the economy change, and as we gain experience with their operation. It is possible that the first level over time may turn out to be either tougher or more lenient than is appropriate, especially given changing conditions.
But Mitt Romney’s assertion that because this rule has not yet been promulgated lenders are not now making mortgage loans makes literally no sense whatsoever. The rule is currently going through a very open process of comment and debate. But the law is very clear: the Qualified Mortgage test has no legal effect until the rule is promulgated. It will not be retroactive. That is, loans made now – and until the rule is promulgated – will be valid loans to the extent that they are valid under existing law. The fact that a loan made today may not meet the Qualified Mortgage test will have no impact on its enforceability. Obviously, this does not mean that any loan made today should be considered appropriate or sustainable; it means only that whatever the current law is regarding loans will govern loans made until the Qualified Mortgage definition takes effect. There is no basis for the assertion that the future promulgation of a test that has no retroactivity is in any way retarding current lending.Mitt Romney also gets the issue of Orderly Liquidation Authority completely wrong. I do not know where he came up with a figure of five banks as subject to the special rules that apply to financial institutions that are so large that they could threaten the stability of our economy. The law sets forward criteria for designating such institutions. The number of institutions which may be covered is far more than five, and these large institutions are not located just in New York. But more importantly, the law does exactly the opposite of what Mr. Romney says. The term “Too Big To Fail” applies to the situation that existed before the law passed. It was during the Bush administration that the Federal Reserve provided funds to A.I.G. when it could not meet its obligations, and kept A.I.G. from failing. The Wall Street Reform and Consumer Protection Act literally makes it impossible to provide such assistance going forward.
First, the law removes the authority under which the Federal Reserve advanced money to a single firm like A.I.G. so it could pay its debts and stay in business. In addition, the law says that no aid can be extended to deal with the consequences of a failure of any large financial institution until the institution is put out of business. That is, there are death panels in the legislation we adopted during the past Congress, but they apply to large financial institutions, not older people. If the Secretary of the Treasury were to advance aid to such an institution and allow it to stay in business, he or she would be violating federal law.
In addition, the designation of financial institutions as “systemically important” subjects them to higher capital requirements and tougher supervision. It then says that if despite this such an institution cannot meet its obligations and the magnitude of those obligations is threatening to the economy – as Bush administration leaders believed was the case with A.I.G. – then the institution must be liquidated (under Orderly Liquidation Authority) and the financial regulators may decide to spend money to deal with those obligations. But the law is clear – any money expended in the course of liquidating such an institution will be recovered first from the failed institution’s assets, and if those are insufficient, then from the financial industry via an assessment on financial institutions with $50 billion in assets or more. That is, unlike the response by the Bush administration in 2008, no funds from the Treasury can be expended in this process without an automatic 100% recovery.
If being designated as “systemically important”-- being subject to tougher supervision, higher capital requirements, and a requirement that liquidation precede any federal assistance in dealing with obligations -- was as desirable as Mitt Romney proposed, then presumably institutions would welcome it. In fact, the institutions subject to this rule are among those heavily financing Mr. Romney’s campaign. That would appear to be an odd reaction to his promise to abolish something that he believes is of great benefit to them. Even more striking is the fact that while some institutions are automatically covered by the definition in the law, there is discretion on the part of the Financial Stability Oversight Council as to others. Every regulator we have asked reports that no institution about which such discretion exists has sought to be included, and in fact, most of the institutions in this category have lobbied hard not to be covered. That is, they understand, as Mitt Romney does not, that these are restrictions on them and not benefits.
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Thursday, June 14, 2012
‘Project by project’ reporting is vital, Financial Times
Monday, June 11, 2012
Dodd-Frank leaves its mark, Financial Times
Saturday, June 9, 2012
Brooksley Born Joins House Dems in Opposing CFTC Budget Cuts, American Banker
Friday, June 8, 2012
Democrats Ask CFPB to Look Into Student Debit Cards, American Banker
Thursday, June 7, 2012
Fed Votes to Raise Capital Requirements, Implement Basel III, American Banker
Thursday, June 7, 2012
House Republicans Seek Cuts in Dodd-Frank Agencies, Bloomberg
Wednesday, June 6, 2012
The High Cost of 'Too Big to Behave' Bank, American Banker
Wednesday, June 6, 2012
US Republicans seeks funding curbs for market regulators, Reuters
Tuesday, June 5, 2012
Dodd: We Told You, American Banker
Friday, June 1, 2012
Dodd-Frank's Say on Pay Rules Pose Triple Threat to Directors, American Banker
Friday, June 1, 2012
Frustrated US investors find their voice, Financial Times
Monday, May 28, 2012
Dodd-Frank Fulfills a Century-Old Vision for Regulation, American Banker
Thursday, May 24, 2012
CFPB Proposal Would Expand Reg E Protections for Prepaid Cards, American Banker
Wednesday, May 23, 2012
Are Small Banks Big Banks' Pawns in Assault on Dodd-Frank? American Banker
Friday, May 11, 2012
Carving Up Big Banks Won't Work, Any Way You Slice It, American Banker
Wednesday, April 25, 2012
Consumer Bureau Targets Payday Loans, Wall Street Journal
Thursday, January 19, 2012
Appointment Clears the Way for Consumer Agency to Act, New York Times
Wednesday, January 4, 2012
Don’t Give Up on the Sensible Ideas of the Dodd-Frank Act, Bloomberg
Tuesday, December 27, 2011
Wall Street Meets Reality, New York Times
Tuesday, December 27, 2011
Congress shouldn't alter whistleblower plan: SEC, Market Watch
Wednesday, Dec. 14, 2011
US banks defer 60% of executive bonuses, Financial Times
Wednesday, October 5, 2011
Moody’s Downgrades Credit Ratings of Three Large Banks, New York Times
Wednesday, September 21, 2011
Does Too Big to Fail Still Exist?, American Banker
Wednesday, September 21, 2011
UBS Scandal Is a Reminder About Why Dodd-Frank Came to Be, New York Times
Monday, September 19, 2011
Dodd-Frank: One hedge against rogue traders, CNN Money
Friday, September 16, 2011
GOP stalls confirmation of consumer agency nominee, L.A. Times
Wednesday, September 7, 2011
Op-Ed: The Senate refuses to consider Obama nominees, Washington Post
Friday, September 2, 2011
Banks Declare Peace with Consumer Bureau Over Regulating Nonbanks, American Banker
Wednesday, August 24, 2011
Op-Ed: Arthur Levitt Jr., Don’t Gut the S.E.C., New York Times
Sunday, August 7, 2011
S.E.C. Needs More Clout, Not Less, New York Times
Thursday, August 4, 2011
Two takes on SEC restructuring: Modernization or evisceration, Washington Post
Tuesday, August 2, 2011
Moody's Junkies, If everyone hates the credit rating agencies, why won't anyone enforce the Dodd-Frank provision to dethrone them?, Slate
Tuesday, August 2, 2011
Editorial: A year of Dodd-Frank, Financial Times
Sunday, July 24, 2011
Opinion, Barney Frank: We are on course to stop a new financial crisis, Financial Times
Friday, July 22, 2011
Barney Frank, Financial Overhaul's Defender in Chief, New York Times
Wednesday July 20, 2011
Banking Run Amok Is Less Likely a Year After Dodd-Frank, Bloomberg
Sunday, July 17, 2011
Frank: Financial Reform -- Gift That Keeps Getting Rejected
Thursday, July 7, 2011
Op-Ed: This is no time to weaken new financial industry regulations, Detroit Free Press
Thursday, July 7, 2011
Editorial: Nearly a Year After Dodd-Frank, New York Times
Monday, June 13, 2011
Bureau drafts new forms to make adjustable-rate mortgages’ true costs clearer, Washington Post
Friday, May 20, 2011
New CFPB Mortgage Disclosures Win Praise for Content and Process, American Banker
Thursday, May 19, 2011
Mortgage-loan forms to get overhaul - Consumer agency seeks comments on proposed disclosure forms, Market Watch
Thursday, May 19, 2011
SEC seeks to limit credit-rater conflicts - Proposals want to block revolving door and ratings shopping, Market Watch
Thursday, May 19, 2011
Shareholders get their say, Boston Globe
Friday, May 13, 2011
The Republicans' fight against consumer protection, Washington Post
Wednesdsay, May 11, 2011
Response to Volatility in Silver Takes Hold, New York Times
Saturday, May 8, 2011
Editorial: Party Like It’s 2013, New York Times
Tuesday, May 3, 2011
Firms Feel 'Say on Pay' Effect, Wall Street Journal
Monday, May 2, 2011
Springtime for Banker, New York Times
Sunday, May 1, 2011
Sewers, Swaps and Bachus, New York Times
Friday, April 22, 2011
Dodd-Frank Would Have Rescued Lehman Creditors, FDIC Says, Bloomberg
Monday, April 18, 2011
Banks eye boring's bottom line, Politico
Wednesday, April 13, 2011
Barney Frank Refutes False Claims by Mitt Romney about the Wall Street Reform law
Friday, October 05, 2012
Barney Frank Statement on Enforcement Action by Consumer Bureau Against Unlawful Practices by Am-Ex Subsidiaries
Monday, October 01, 2012
Barney Frank’s Statement on Federal Reserve Action to Accelerate Economic Recovery
Thursday, September 13, 2012
Barney Frank’s Statement Regarding FHFA Acting Director DeMarco’s Refusal to Use Principal Reductions
Thursday, August 02, 2012
Congressman Barney Frank criticizes Posey Amendment as “Tax evaders bill of rights”
Thursday, July 26, 2012
Barney Frank’s opening statement at the FSC hearing with Secretary Geithner
Wednesday, July 25, 2012