WASHINGTON — Republican presidential nominee Mitt Romney was wrong to say Dodd-Frank offers the "biggest kiss" to large banks, according to Sheila Bair.

In a video interview with American Banker, Bair — a former Federal Deposit Insurance Corp. chairman and a Republican — disputed Romney's criticisms last week of the authority to designate firms as systemically important and other provisions of Dodd-Frank.

"It was more like a poke in the eye with a sharp stick," Bair said of systemic designations. "I'm not surprised he said that because a lot of people who don't like Dodd-Frank have said that. And I really think that's misinformed."

Giving regulators the power to designate certain large banks and nonbanks as systemically important helps reinforce the idea that these firms are "too big to fail," Romney said in the Oct. 3 presidential debate.

"This is the biggest kiss that's been given to New York banks I've ever seen," Romney said. "This is an enormous boon for them."

But Bair dismissed the comments, saying such a designation effectively puts companies into "a penalty box."

"What it says is these institutions are a higher risk and we're worried about them and we are going to put a lot more regulation on them," Bair said.

She noted that companies will face higher capital and liquidity requirements as well as tougher oversight from the Federal Reserve Board. Firms can also be unwound if they do not produce a satisfactory "living will," a resolution plan that details how they must be broken up.

During the presidential debate, President Obama mentioned living wills in response to Romney's argument, saying the law makes sure they have a "living will so we know how…to wind things down" if banks make a "bad bet."

Bair said that contrary to Romney's assertions, banks and nonbanks do not want to be designated as systemically important, a power given to regulators under Title I of the financial reform law.

"I don't think anyone is eager for a Title I designation," Bair said. "They might try to spin it like it's a good thing, but it's a bad thing. It's a very bad thing if you are designated."

She also took issue with Romney's comment that small banks have failed as a result of Dodd-Frank. During the debate, Romney said "there have been 122 community and small banks that have closed since Dodd-Frank."

But small bank failures were unrelated to financial reform, Bair said.

"I am sympathetic to some folks complaining that some of the regulatory implementation of Dodd-Frank is unnecessarily burdensome to small banks — I think that's true — but not to the extent that they are…causing their failure," Bair said. "I don't see any cause and effect."

Banks were failing because they were hard hit during the financial crisis and the resulting recession, she said.

Bair acknowledged she was frustrated by Republican arguments that Dodd-Frank did not end bailouts. In her book, Bull by the Horns, Bair says she worked hard during the debate over the law to include language that specifically banned bailouts.

Those provisions were incorporated into Title II of the law, saying the government cannot provide assistance to a single financial institution. It can provide broad-based support to the entire industry.

"It's just politics," Bair said of GOP claims that the law enshrines bailouts. "Title II bans bailouts. We worked very hard to get language in there that bans bailouts — and we had to take on Secretary [Tim] Geithner on that as I recount in my book because early iterations of what the Treasury Department had proposed was bailout authority."

In the event that a large bank company falters, one of two things will happen — either the firm will go through the traditional bankruptcy process or, if regulators fear a systemic impact, it will be seized and resolved by the FDIC.

That process is "every bit as harsh as bankruptcy," Bair said. "The shareholders and creditors take losses. … Dodd-Frank mandates that responsible executives and board members be fired and two years of compensation be clawed back. In bankruptcy you don't even have that. Management can keep their job in the bankruptcy process.

"So it is tougher, if anything, harsher, if anything. So I wish we could get the record clarified on that."

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