WASHINGTON — A top administration official on Thursday called the Dodd-Frank Act “one of the most partisan pieces of legislation in modern history” and blasted resolution powers provided to regulators in the law as a bailout.

Mark Calabria, the chief economist to Vice President Mike Pence, indicated during a speech at the Bipartisan Policy Center that in the realm of financial policy, the administration is still focused on rolling back Dodd-Frank.

“Once we repeal Dodd-Fank, I will be delighted to forget what was passed and all will be forgiven,” Calabria said. But “I don't think we're willing to let that go.”

Mark Calabria, chief economist for Vice President Mike Pence
“The FDIC is allowed to pay 'any obligations,'” said Mark Calabria, chief economist to Vice President Mike Pence. “If you’re bailing out creditors, that’s a bailout.” Bloomberg News

Beyond what he saw as the law’s lack of bipartisan consensus, Calabria said Dodd-Frank had created the promise of a bailout for large financial institutions in its orderly liquidation authority provision, which allows the Federal Deposit Insurance Corp. to take over a failing bank and liquidate it.

“The FDIC is allowed to pay 'any obligations,' ” he said. “If you’re bailing out creditors, that’s a bailout.”

Orderly liquidation authority is laid out in Dodd-Frank as a backstop for large failing banks, with bankruptcy being the first option. But critics have pointed to the FDIC’s ability to draw from a special Treasury fund to pay for the liquidation as proof that it offers the potential for a bailout.

Multiple bills have been introduced in the House and Senate since Dodd-Frank that have called for reforming the bankruptcy code to better accommodate large financial institutions.

“If you find yourself insolvent, I would really suggest you call a good bankruptcy lawyer and not an army of Washington lobbyists,” Calabria said. “Because I will not be returning your call.”

He also suggested that repealing orderly liquidation authority could be presented as a bipartisan issue. Both House Financial Services Committee Chairman Jeb Hensarling, R-Tex., and Sen. Elizabeth Warren, D.-Mass., have called for ending bailouts, he said.

Calabria added that more broadly, Dodd-Frank created a moral hazard problem for financial institutions and their creditors.

“In no free market will you see any institution have a biz line leveraged 200 to 1,” he said. “Unless there was a perception of an implied guaranty.”

Calabria, formerly head of financial regulation studies at the Cato Institute, also gave some indications as to how the administration would move forward with its deregulatory goals despite Congress’ long to-do list.

“Changes in personnel can and will have significant implication for financial regulation,” he said. “Foremost in my mind is replacing regulators who favor bailouts with regulators who oppose bailouts.”

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.