A description of the Dodd-Frank Wall Street Reform and Consumer Protection Act at the October 3 presidential debate has sparked its own debate in legal circles.
Republican candidate Mitt Romney told the debate audience of estimated 67 million television viewers that Dodd-Frank designates some banks as too big to fail, and hurts community banks and the overall economy.
The biggest banks are "effectively guaranteed by the federal government," Romney said. "It's the biggest kiss that's been given to New York banks I've ever seen."
Not so fast, says University of Michigan Law School professor Michael Barr, who spent his time turning reform ideas into legislation as Assistant Secretary for Financial Institutions for the U.S. Treasury Department.
"I thought Governor Romney was grossly wrong in his description of the law," Barr said. The law actually winds down those big financial institutions if they fail, he said, without a burden to taxpayers.
"He twisted that somehow into the opposite idea is it enshrines the idea of too big to fail," Barr said.
David Skeel, a University of Pennsylvania Law School professor who wrote a book about Dodd-Frank, said the "kiss" statement was a significant exaggeration. "It's easy to imagine what a big kiss for the banks would have looked like," he said.
Yet Skeel says Romney's statement was correct because the law did not really rein in the big banks, so it has reinforced the advantage the big banks have. "The argument it didn't reign in the big banks and hurt the community banks is a good argument."
The financial services industry — and the many top law firms that represent those banks — have spent years in a high-profile lobbying battle over how the law will be implemented.
Romney said he would "repeal and replace" Dodd-Frank if elected, though a full repeal would be difficult without the Republicans gaining a filibuster-proof majority in the Senate, which is unlikely.
In the debate, Romney did concede the need for some regulation. "I was surprised Romney was as hard on the big banks as he was," Skeel said. "I'm surprised he would be willing to step on their toes, even verbally."
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