Romney's Muddled Message on Dodd-Frank

TAMPA, Fla. — For a candidate who is vowing to repeal the Dodd-Frank Act, Mitt Romney sure seems on board with a significant number of its provisions.

In an interview with Time magazine last week, the Republican presidential candidate suggested that the proper response to the financial crisis would have established tougher capital requirements, stricter limits on leverage, and risk-retention rules.

The problem? All of those ideas are already part of Dodd-Frank.

It's possible that Romney was citing pieces of the law that he agreed with, or implying that implementation of those measures is proceeding poorly. But if so, he didn't say that.

Instead, he spoke mostly in broad strokes, seeming to endorse the kind of bank regulatory system that we have today.

"We do need to have regulation in the banking industry," Romney said. "Extensive regulation is appropriate in an industry that has such an impact on the overall economy. We have to look at what the causes were of the last crisis and take action to prevent those causes from reappearing."

Romney, who has made over-regulation a key theme of this week's Republican convention in Tampa, then proceeded to cite specific ideas aimed at preventing the next crisis.

"What kinds of things come to mind include capital requirements, levels of leverage which are appropriate and inappropriate, banks maintaining risk in assets which they gather," he said. "Specifically, I'm referring to the idea [that] if a bank originates a loan or a mortgage that it should be on the hook for some portion of the loss if that loan or mortgage fails. These kinds of provisions, I think, would be directly applicable to the kind of crisis that we experienced before."

But much of that plan sounds identical to ideas that are already part of the Dodd-Frank law.

One of the few congressional Republicans who voted for Dodd-Frank, Maine Sen. Susan Collins, authored a provision that requires banking agencies to establish minimum capital and leverage requirements for banks and systemically important non-bank financial companies. The process of turning those requirements into concrete regulations is now well under way.

Moreover, Dodd-Frank requires banks that securitize loans to retain some of the risk in their own portfolios.

Ironically, the risk-retention provision is one of Dodd-Frank's most controversial measures, and its implementation has met strong resistance from the housing industry as well as both Democrats and Republicans in Congress.

Romney's comments would appear to indicate he sides with the Obama administration's side in that debate or, at the very least, supports the idea behind risk retention.

Elsewhere, Romney has spoken favorably about other aspects of Dodd-Frank.

He's said that in the wake of the financial crisis, derivatives needed to be regulated, and that there was a need for better regulation of mortgage lending — both ideas that are already part of the reform law.

To be sure, no one believes that Romney is exactly on the same page as President Obama when it comes to financial reform, but since his statements have been frustratingly vague, it's hard to know exactly where the GOP hopeful stands. To date, Romney has said only that he wants to repeal Dodd-Frank and replace it with a "streamlined regulatory framework," a proposal that could mean just about anything.

It's not even clear, for example, whether Romney would favor eliminating the Consumer Financial Protection Bureau — one of the most politically popular parts of the reform law yet the most contentious for financial institutions.