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