WASHINGTON — Rep. Shelley Moore Capito, the West Virginia Republican who chairs the House financial institutions subcommittee, doesn't seem like much of a bomb thrower.

Although she mostly votes with her more conservative peers, her reputation is more of a pragmatist than an ideologue.

But Capito is the co-author of one of the most controversial financial services bills of the past year — legislation that would give banks the right to appeal an exam rating to other regulators.

While community bankers have hailed the bill, the agencies are quietly seething, viewing it as interfering with their abilities to do their jobs.

The sixth-term representative recently spoke to American Banker about her bill, the Dodd-Frank Act, the Consumer Financial Protection Bureau and the future of Fannie Mae and Freddie Mac.

Here is an edited transcript of the interview:

Back in July, the top Republicans on the House Financial Services Committee held a press conference on the first anniversary of Dodd-Frank. Everyone who spoke at that press conference gave the law an F except for you. You gave it a D-minus. Why?
Well, I think I said at the time that, a year later, some of the Dodd-Frank issues — in terms of transparency and accountability and reshaping some of the regulatory controls that were not in place — at least kept it from flunking.

The other parts that I think weighted it down to the D-minus were the over-burdensome regulations, some issues on the CFPB. I had problems — and still do — with the resolution authority.

Right now, I'm still going to give it a D-minus because in my view it's spinning. Nobody really knows where it's going to go.

Your exam bill with Rep. Carolyn Maloney has raised concerns with regulators. What would you say to those that worry the bill would undermine the long tradition of independent bank examinations in the U.S.?
This isn't an attack on examiners. What we're trying to get at is a problem we've heard repeatedly, that there's a disconnect between what's going on in Washington, what they've testified in our committee — "Yes, we're watching this, and we know that getting capital to small businesses is really important. And we're encouraging institutions to support their longtime customers, even though their real estate market is falling down."

In reality, there's a disconnect between then what happens at the examiner's level, in terms of kind of ratcheting down on financial institutions.

So this is basically trying to find a way to take what we're hearing from Washington, the FDIC and such, and say, 'OK, this is what you're saying. We'll put it into legislation as guidance for the examiners.'

Now, just because there's been a long history of non-interference in the independence of examinations doesn't quite mean that that's something that has to be continued.

I think we have a role to play here. And that's a liaison between our constituents and a federal agency. I mean, that's what our jobs are basically.

The CFPB has been up and running since July. Has it done anything so far that worries you?
Let me tell you what I don't worry about. They're touting the shorter mortgage form with disclosure. I think that's been in the process of legislation for years. Makes sense, but good luck getting it done. They're still going to have the mound of papers under it for legal issues. So that doesn't worry me.

Know-before-you-owe on student loans and credit cards is probably something that we've kind of nibbled around the edges on. And of course, the veterans' initiatives are great, especially in this time. And I understand they're going to be doing an initiative toward the elderly as well.

But what I'm concerned is what reach they're going to have, what kind of enforcement mechanisms they're going to use, and what kind of powers is that really going to generate from them.

I'm worried that there's no oversight on their spending, and there's no oversight on their budget from Congress. I'm concerned about the fact that we have a single director that can't get confirmed, while we have passed legislation to have a commission type of structure.

And the other thing that concerns me is, in talking with the regulators, have you really divested yourself of the oversight over consumer protection? We're supposed to be getting rid of these silos, according to Elizabeth Warren. Is that really happening?

Are you concerned that banks potentially now face an uneven playing field since non-banks can't be regulated by the CFPB until it has a director?
You know, I'm really not worried about that.

I think the right answer is that there are financial entities that are still basically being regulated through the states mostly. So if you look at things like payday lenders and pawn shops and all those kinds of entities, those are still subject to state regulation.

Have you met with Raj Date, and what are your impressions of the job he's doing so far?
Yes. I think he's moving forward as much as he can. He came to our committee, we had a hearing. And he was forthcoming.

I think he's defensive of the motive of the direction he's going, and I think that's understandable.

And by going to things like a mortgage and a credit card and a student loan and the elderly and the veterans, they're obviously, I think, creating consumer protection around very popular issues.

I think that's probably a crafty way to go about the beginning of the structure of the organization.

You spoke at the American Banker's Regulatory Symposium back in September, and you were candid about the fact that there are different views within the House Republican caucus about housing finance reform. Would it make sense for Republicans like yourself, who don't want to wind down Fannie and Freddie as fast as some of your Republicans colleagues may, to start talking to Democrats on this issue?
It's less about timing of winding down, because I think the endgame is a wind-down. It's more about making sure within the wind-down that there is adequate support for something else to move into that market.

I don't know what the Democrats' position is on this. I would certainly think that the bailouts that we keep reading about can't sit well with them — any better with their constituency than it sits with mine.

Part of it is, it's extremely complicated. And it's so tied to real estate values that until we get you know a bump up in our real estate values, I think that makes it more difficult.

In other words, there may not be the political will until there's a bottom found in the real-estate market?
I don't know. The counter-argument would be if you don't push it, there's going to be no bottom found. So I just think that's what makes people leery, because nobody wants to go through that again.

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