To mark the 15th anniversary of the Dodd-Frank Act, SIFMA President and CEO Kenneth E. Bentsen, Jr., joined Romaine Bostick on Bloomberg’s “Bloomberg The Close.” He acknowledged the landmark law’s role in stabilizing the U.S. financial system following the 2008 crisis. While praising its impact on resilience, Bentsen called for a thoughtful recalibration of certain provisions.

“There is no question many of the reforms… have certainly created a more resilient system,” he said. “But at the same time, we know that some of those rules and requirements were overly stringent and have constrained banks’ abilities to finance markets.”

Transcript

Edited for clarity

Romaine Bostick: I don’t want to sort of relitigate the sort of origins of Dodd-Frank. I think we can all agree that something was needed coming out of the financial crisis. But as you look back 15 years later, Ken, is there an argument to be made that maybe Dodd-Frank has run its course?

Kenneth E. Bentsen Jr.: Well, first of all, thank you for having me. And I have a couple of things I would First of all, it’s good that the Congress is having the hearing. Congress often pass this legislation. I know this from personal experience and always says, we’ll come back and look at it and doesn’t get around to it. But so this is an appropriate hearing to have. And I think also we shouldn’t look at this as sort of a binary choice. There’s no question that many of the reforms that went into place in terms of capital and liquidity have certainly created a more resilient system, particularly with the large, complex banking organizations. We were also very important in our capital markets, which of course, capital markets are hugely important to the operation of the U.S. economy.

But at the same time, we know that some of those rules and requirements were overly stringent and have constrained banks ability to finance markets. I thought the conversation you just had with Sarah Devereaux overall was outstanding. But in the discussion about the Treasury market, we’ve seen exponential growth in the Treasuries issues outstanding. And at the same time, primary dealer balance sheet has remained flat, which creates issues. And part of that is because of the requirements of the legislation. And we still have things to do, as you said. We still have the Basel III Endgame and the fundamental review of the trading book that as originally proposed, would be quite punitive to banks ability to engage in financing in the capital markets, and that would be a detriment to our economy.

Romaine Bostick: I am curious then, I mean, given the new dministration and an approach that they have taken to the financial industry, that certainly seems a little bit less onerous than maybe the previous administration. Do you think there would be a meaningful opening to go back to Congress and actually reduce some of those provisions, if not the entirety of the legislation?

Kenneth E. Bentsen Jr.: Well, I think they should. I think there are certain things that we can look back and say they may, you know, they worked or they didn’t work. And again, it’s not a binary choice. It’s not all good, all bad. It’s some stuff where some stuff didn’t work. And so you look at things like the Collins amendment, which sets a minimum floor that really exceeds where other jurisdictions are. And that’s again a problem for the U.S. because we rely on our banks to engage in financing in the capital markets and we don’t want to hamstring that because that’s so important to our economy.

Similarly, as I noted, you know, finishing off the Capital Rules Basel III Endgame, I don’t know that Congress needs to go back and change that, but I think it’s good that the Fed is going back. They’re having a conference next week to look at all the capital liquidity rules that have been done and then inform their decision on how they’re going to go forward to close out a proposal that’s been out there, you know, since Dodd-Frank passed.

Romaine Bostick: I mean, as head of SIFMA, you represent the broker-dealers, a lot of the investment banks, and asset managers. What is the number one thing that they’re asking for that they’re asking for you to go into, to go around Washington and make it clear that this is what they need?

Kenneth E. Bentsen Jr.: Well, I think it goes back to constraining the ability of firms to engage in the capital markets business. We finance 75% of commercial activity in the U.S. in the capital markets, which is, you know, the inverse in Europe and Asia, who would like to build their capital markets in the same way that we have ours? I was just in London and Paris last week on business and both the EU and the UK are seeking to dramatically grow their capital markets, as you know, as opposed to everything going on bank balance sheet. So we need to be protecting that asset that we have in the U.S. and a lot of that comes down to what we do on these capital and liquidity rules that were prescribed in some cases by Title I of Dodd-Frank. So that’s really the first place to start. I think beyond that, we can go back and look at some of the rules that were promulgated in the swaps area, in the mortgage area that perhaps well intended, but overshot the mark. So I think there are I think there are a number of recalibration that can be done.

And then lastly, I would say with respect to some of the tailoring that was done before our our foreign banks, which play a very big role in the U.S., capital markets have really been put it at a distinct disadvantage to deploy capital in the U.S. And so I think that’s something else that Congress should take a look at.

Romaine Bostick: Now, I know you’re no stranger to testifying on Congress, and obviously you are a member of Congress yourself for several years. You know, you’re going to get some pushback from a certain side of the aisle on a lot of these issues. Can the idea that some of them will try to make the argument that without these provisions, as they were originally intended to be, that somehow our financial system would be more at risk, our economy would be more at risk. What would be your response to those concerns, that these protections are there for a reason?

Kenneth E. Bentsen Jr.: Well, first of all, it’s not a binary choice. It’s not an either or choice. It’s what makes the most sense. So no one is talking about, you know, ripping Dodd-Frank out from its roots. We certainly aren’t. But it is thinking about before you add things on which the original Basel III Endgame proposal would have done, we should go back and look and see what we’ve done now and what’s worked, and what hasn’t worked. And we should be thinking about what’s going to be not just not just providing resiliency and safety and soundness that’s important, but also what’s promoting economic growth. And again, the U.S. relies heavily on its capital markets. It’s served us well. We should be thinking of what we can do to promote that.

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