Delamaide: Bank rules win fans

WASHINGTON — Have Republicans thrown in the towel on their opposition to the Consumer Financial Protection Bureau?

After fighting tooth and nail to block creation of the new agency that centralizes regulation of credit cards, mortgages and other consumer financial services, Republican congressmen virtually failed to mention the CFPB in a new report on the shortcomings of financial reform.

The 97-page report released this week by the House Financial Services Committee mentions the new agency only in the context of its inclusion in the Financial Stability Oversight Council, another new institution set up by the Dodd-Frank financial reform act, which brings together all the financial regulatory agencies to coordinate policy.

This after voting against creation of the CFPB, seeking to block its funding, filibustering appointment of the first director, and berating the director once he was appointed in hearing after hearing for how much the agency was spending to renovate its new office space.

The reason for this sudden disinterest in attacking consumer finance protection might be found in a new poll out this week, which found that three-quarters of those surveyed are in favor of the CFPB — including 85% of Democrats, 75% of independents and 63% of Republicans.

In general, the survey by Lake Research Partners on behalf of Americans for Financial Reform and the Center for Responsible Lending found that nearly four-fifths (78%) of respondents across party lines favor tougher regulation of Wall Street, three-fifths (61%) believe new regulations can help prevent a future financial crisis, and only one-fifth (21%) think that these regulations hurt the economy.

This new poll follows on the heels of a similar survey released last week, which showed that 60% of Americans — again crossing party lines — favor stricter regulation of banks, and only 28% oppose more regulation.

That poll, conducted by Greenberg Quinlan Rosner Research on behalf of the advocacy group Better Markets, found that nearly nine-tenths (89%) of respondents think current efforts by the financial regulatory agencies as they drag their feet in implementing Dodd-Frank are "poor" or "just fair."

So it probably makes sense for House Republicans to focus their criticism of Dodd-Frank now on its "failure" to end "too big to fail" in the financial system.

That's the main thrust of the House Republicans' report, which argues that the law's requirement that the FSOC designate certain big banks and insurers as "systemically important financial institutions" actually signals to the market which companies would get a bailout in a new crisis.

The point of the designation as described in the law is to submit these "SIFIs" to stricter requirements and closer supervision, as ways to keep them from failing or to encourage them to get smaller.

"In no way, shape or form does the Dodd-Frank Act end 'too big to fail,' " Rep. Jeb Hensarling, R-Texas, chairman of the House committee, said in a statement when the report was released. "Instead, Dodd-Frank actually enshrines 'too big to fail' into law."

This is likely to be the focus of a hearing held by the panel this week to assess the impact of Dodd-Frank on the fourth anniversary of its enactment.

The Democratic minority on the panel was allowed to name only one of the five witnesses to the Wednesday hearing, but they cleverly invited former Massachusetts congressman Barney Frank, the colorful co-sponsor of the legislation.

With Frank pitted against four worthy but hardly prominent experts, the hearing is likely to have more entertainment value than any useful discussion of Dodd-Frank or too big to fail.

The lawmakers may as well debate how many angels can dance on the head of a pin, because it's pure speculation at this point to what extent the various measures in Dodd-Frank — from more stringent capital requirements for big banks to a "resolution authority" to manage their liquidation in case of failure — would actually obviate the need for a government bailout.

The report from the Democratic minority on the panel, citing the new polls, suggests that people find the other aspects of financial regulation — the ones that actually affect their daily lives such as those in the CFPB's bailiwick — more relevant than the theoretical discussion about too big to fail. The full name of the law Frank helped shepherd through Congress, after all, is the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Lake Research poll, for instance, found that large majorities (two-thirds to nine-tenths) favored several specific measures they were asked about, including requirements that small-dollar lenders make sure loans are affordable, that student loans can be paid back with a monthly payment based on income, that debit cards have to decline purchases rather than charge a fee, that banks not be allowed to charge more than six overdraft fees per year, and that companies issuing prepaid cards should decline purchases rather than charge overdraft fees.

For consumers, it seems, financial regulation is not just a political football to play games with, but a real-life role for government that they welcome.

Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron's, Institutional Investor and Bloomberg News service, among others. He is the author of four books, including the financial thriller Gold.