Rep. Waters Open to Dodd-Frank Fixes

WASHINGTON — Rep. Maxine Waters extended an olive branch to the banking industry on Wednesday, saying she would consider certain changes to the Dodd-Frank Act.

The lead Democrat on the House Financial Services Committee said there was "room for modification" within the financial reform law, though she maintained strong support for traditional Republican targets such as orderly liquidation authority.

Democrats have generally been reluctant to reopen Dodd-Frank for fear the GOP might succeed in rolling back key provisions.

"I am not open to wholesale revisions to the act — or to dismantle it piece by piece," Waters told the Chamber of Commerce's annual capital markets conference in Washington. "However, where there are specific provisions of the act that have shown to be detrimental to our goal of creating transparency and stabilization, I'm open to discussing areas that require clarification."

For example, Waters cited recent rulemakings by the Securities and Exchange Commission and the Commodity Futures Trading Commission on overseas swaps regulation. While the Dodd-Frank law divided rulemaking between the two agencies, Waters raised concerns about a "lack of harmonization" on the rules.

The rulemaking "essentially undermined the intent of [Dodd-Frank] by limiting the ability of our regulators to protect against exposure to the financial system that oversees risk stemming from the strength of derivatives," she said.

While Waters sounded conciliatory toward Republican efforts to amend the law, her GOP counterpart, Chairman Jeb Hensarling, continued to toe a hard line.

"With all due respect to its authors and admirers, the Dodd-Frank Act today stands a monument to the arrogance and exuberance of man and the answer to incomprehensible complexity is yet more incomprehensible complexity," said Hensarling at the same conference. "I believe Dodd-Frank remains a fundamentally flawed law and should be repealed but the last time I looked the president won the reelection so I'm not holding my breath on that one."

Hensarling was adamant that lawmakers end policies that designate institutions as systemically risky, saying it only solidified the concept of "too big to fail."

"Designating any firm as too big to fail is bad policy and … it causes erosion of market discipline," he said. "Clearly, if this process has taught us anything, is that regulatory discipline has proven to be no substitute for market discipline."

Waters stood her ground on that issue, however, saying provisions such as orderly liquidation authority and living will requirements for big banks must be given an opportunity to work.

"I know that there is some concern with the implementation of Title II which establishes an orderly liquidation authority" for large financial institutions, Waters said. "But I believe we must fully implement this new regulatory regime and give it time to work before assessing whether it is completely ineffective."

Waters also told the Chamber that she has not seen any draft bill to break up the big banks despite some lawmakers supporting the idea. (Sens. David Vitter, R-La., and Sherrod Brown, D-Ohio, are expected to introduce a bill on the issue soon.)

"There's a lot of talk about" breaking up the big banks "but I have not seen any bill come forward," she said. "I have not seen any real description of what it means to break up the large financial institutions."

Hensarling promised that his panel will examine proposals to reduce the "moral hazard" to the deposit insurance system imposed by the Dodd-Frank Act as well as the "suspect" Basel III proposed capital requirements.

"We will take a careful and thorough examination of who has access to the discount window and under what conditions," he said. "We will look to improvements in our bankruptcy code and take careful attention to capital standards."