I was pleasantly surprised that last night's debate hit on some less-talked-about policy issues, especially financial regulation. Prospective voters who watched it heard several statements from the candidates about what they plan to do to protect the financial system from getting wrecked in another crisis.
Both candidates pledged generally to support effective financial regulation. But former Gov. Mitt Romney charged that the Dodd-Frank Act in its present form is hurting the economy and making it harder for consumers to get mortgages and other loans.
In particular, Romney said that in designating some of the biggest banks "systematically important," Dodd-Frank effectively gives them special treatment and a competitive advantage over smaller institutions:
(Dodd-Frank) includes within it a number of provisions that I think has 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 -- to New York banks I've ever seen. This is an enormous boon for them. There've been 122 community and small banks (that) have closed since Dodd- Frank.
Romney's characterization of the measure probably would come as a surprise to the policymakers who crafted it. That's because the whole point of the measure was to eliminate "too big to fail" by creating a detailed plan to liquidate an insolvent megabank so that it can be dismantled by the Federal Deposit Insurance Corp., just like any other failed bank.
Ironically, this is probably one of the provisions of Dodd-Frank that community banks most strongly support. In a letter to the Federal Reserve, the Independent Community Bankers of America had this to say about systematically important financial institutions, or SIFIs:
Enhanced supervision of the SIFIs together with a significant capital surcharge will provide more stability to our financial system and discourage SIFIs from becoming larger and more interconnected. It will also mitigate to some extent the funding advantage that SIFIs have over community banks.
Romney also criticized the implementation of Dodd-Frank, charging that delays in the rule-making process are creating more uncertainty in the economy:
It's been two years. We don't know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. 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 always was wrong with too much regulation. Sometimes they didn't come out with a clear regulation.
Finally, Romney pledged to replace Dodd-Frank with a better system of financial regulation, but declined to go into detail about what that would entail. President Obama seized on that reticence and attacked Romney for being too vague:
He says that he's going to replace Dodd-Frank, Wall Street reform, but we don't know exactly which ones. He won't tell us.
Obama also defended Dodd-Frank's "too big to fail" provisions and said that the law had strengthened the financial system:
You also had banks making money hand over fist, churning out products that the bankers themselves didn't even understand, in order to make big profits, but knowing that it made the entire system vulnerable.
So what did we do? We stepped in and had the toughest reforms on Wall Street since the 1930s. We said you've got -- banks, you've got to raise your capital requirements. You can't engage in some of this risky behavior that is putting Main Street at risk. We're going to make sure that you've got to have a living will so, so we can know how you're going to wind things down if you make a bad bet, so we don't have other taxpayer bailouts.
Obama said Romney's plan to repeal Dodd-Frank risked returning Wall Street to the status quo:
The question is: Does anybody out there think that the big problem we had is that there was too much oversight and regulation of Wall Street? Because if you do, then Gov. Romney is your candidate. But that's not what I believe.
What do you think? Whose take on financial reform won you over in the debate last night?
Follow me on Twitter: @ClaesBell.