NU Online News Service, Dec. 01, 12:00 p.m. EST
WASHINGTON—Rep. Barney Frank, D-Mass., today defended the Dodd-Frank Act, and said it is unlikely it will be reversed by Republicans.
At the same time, Frank used the bailout of American International Group Inc. (AIG) as a means of defending provisions of the law that eliminated the ability of the Federal Reserve Board to bailout out troubled institutions, like AIG.
Frank cited overwhelming public support for the Dodd-Frank Act (DFA), adding that even Republican legislators highly critical of it, acknowledge that it was necessary.
Frank announced earlier this week that this will be his last term in Congress. He opened his remarks in his typical tongue-in-cheek fashion by saying that he felt his retirement announcement Monday was not the reason for the strong stock market rally this week.
In his comments on AIG, Frank implicitly touched on draft legislation unveiled at a hearing of a Financial Services Committee subcommittee Nov. 16 seeking to weaken the DFA by limiting the ability of the Financial Services Oversight Council (FSOC) to monitor insurers and have them pay the costs of the failure of a “too-big-to-fail” institution, like AIG.
Frank made his comments as keynote speaker of the Consumer Federation of America (CFA) 24th annual financial services conference.
In his consumer federation appearance, Frank also criticized efforts by Republicans to weaken enforcement and implementation of the DFA.
He said Republicans are doing this by attempting to attach riders to appropriations bills that limit implementation of controversial provisions, and also by reducing funding of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission in order to limit the agencies from writing the rules needed to implement the law, as well as enforce its provisions and intensify oversight of market players.
He said that the so-called “too-big-to-fail” provisions used to pass the act has been replaced by provisions which allow a troubled large financial firm to “die,” but allows federal regulators the power—without the need to consult Congress—to provide funds that prevent “contagion” stemming from the losses of the failed institution from affecting the overall economy.
He said that when the problems of Lehman Bros. and AIG came up in September 2008, members of Congress were told they would either have to protect all debt holders and equity holders, or let the institution fail.
“Neither policy is appropriate,” Frank said. He explained that under DFA, regulators have the power to pay off debts of the failing institutions deemed necessary to prevent systemic problems, but not all debts, or, he explained, “pick and choose.”
Furthermore, he said, under DFA, it is the private sector, not the government, that must pay back the funds loaned to prevent the failure of the institution from affecting the entire economy.
Insurers are especially concerned about these proposals.
At a recent hearing of a subcommittee of the House Financial Services Committee, property and casualty insurers and the Council of Insurance Agents and Brokers, look to limit FSOC authority.
One proposal would end the authority of the FSOC to subpoena the records of insurers, and to ask them directly for financial data.
Under one draft, the FSOC would have to work through the National Association of Insurance Commissioners (NAIC) to get this data. Industry officials privately point to the decision of the Federal Reserve Board to limit the authority of MetLife to raise its dividend as one reason for justifying such legislation.
Another would “explicitly and entirely” exclude insurance companies, including mutual insurance holding companies from the Federal Deposit Insurance Corporation’s “orderly liquidation authority” for troubled large non-banks.
The third would “preclude” the Federal Reserve from establishing higher prudential financial standards to troubled insurance companies it would oversee as ordered by the FSOC.
The draft bill would also prohibit the FDIC from obtaining a lien on an insurance company’s assets without the written consent of the insurance company’s state regulator.
Another proposal would prohibit the FDIC from counting insurance assets, liabilities, or revenues in its assessments on financial firms to pay for shortfalls when the assets of a failed firm are insufficient to pay for the failed firm’s resolution under the FDIC’s “orderly liquidation authority.”