WASHINGTON – Republican presidential candidate Mitt Romney sharply questioned President Obama’s bank regulatory policies during the debate Wednesday evening, charging that the Dodd-Frank Act reinforced the notion of “too big to fail” and warning that the failure to finalize a “qualified mortgage” rule has stifled the housing market.

Romney moderated earlier calls to repeal the 2010 law, which placed a host of new requirements on banks in the wake of the financial crisis, instead saying he’d like to replace it. 

Republicans have repeatedly attacked provisions of Dodd-Frank since its passage, with many arguing that the law should be rescinded outright. Romney focused on several parts of the law that have particularly rankled the GOP, including the designation of certain large banks and nonbanks as systemically important.

Regulation is essential. You can’t have a free market work if you don’t have regulation. … At the same time, regulation can become excessive,” Romney told debate host PBS’s Jim Lehrer.

“Dodd-Frank was passed and it includes within it a number of provisions that I think have some unintended consequences that are harmful to the economy. One is it designates a number of banks as ‘too big to fail.’ And they’re effectively guaranteed by the federal government.”

“This is the biggest kiss that’s been given to New York banks I’ve ever seen. This is an enormous boon for them. There have been 122 community and small banks that have closed since Dodd-Frank,” he added.

But at the same time, Romney noted that there “are some parts of Dodd-Frank that make all the sense in the world,” listing “transparency” and “leverage limits” before Lehrer cut him off, in the midst of what amounted to a freewheeling 90-minute showdown between the two presidential contenders. 

Obama’s response appeared tepid at best, failing to substantively rebut the idea that Dodd-Frank solidified “too big to fail.” His lack of specifics may well have been one of the president’s biggest missed opportunities of the debate.

Instead, Obama reminded the audience about some of the causes of the crisis, including borrowers buying houses they couldn’t afford and credit agencies gold stamping the process.

“You also had banks making money hand over fist churning out products that the bankers themselves didn’t even understand,” he said.

“So what did we do? We stepped in and had the toughest reforms on Wall Street since the 1930’s. We said, ‘Banks, you have to raise your capital requirements. You can’t engage in some of this risky behavior that is putting Main Street at risk,” Obama added. “We’re going to make sure you’re having a living will so we know how you’re going to wind things down if you make a bad bet so we don’t have other taxpayer bailouts. In the meantime, by the way, we also made sure that all the help that we provided those banks was paid back – every single dime with interest.”

Obama then pressed on Romney’s earlier calls to repeal the law, warning about the dangers of too little regulation.

“And so the question is, does anybody out there think the big problem we had was there was too much oversight and regulation of Wall Street? Because if you do, then Gov. Romney is your candidate,” he said. 

But Romney followed up by raising further concerns about the so-called qualified mortgage provision of Dodd-Frank. Under the law, the Consumer Financial Protection Bureau must require lenders to ensure a borrower has the ability to repay a loan unless it is a “qualified mortgage.” But the agency has repeatedly delayed issuing a final rule – something Romney seized on in his remarks.

“You say we were giving mortgages to people who weren’t qualified. That’s exactly right. That’s one of the reasons for the great financial calamity that we had. And so Dodd-Frank correctly says we need to have qualified mortgages and if you’re given a mortgage that are not qualified there are big penalties,” said Romney.

“Except they didn’t go on to define what a qualified mortgage was. It’s been two years, we don’t know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try getting a mortgage these days,” he added. “It’s hurt the housing market because Dodd-Frank didn’t anticipate putting in place the kinds of regulations you have to have. It’s not that Dodd-Frank was always wrong with too much regulation, sometimes they didn’t come out with clear regulations.”

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