MSNBC "The Rachel Maddow Show" - Transcript

Interview

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Joining us now is Congressman Barney Frank, Democrat of Massachusetts. He"s chairman of the House Financial Services Committee, which shepherded a sweeping overhaul of the nation"s financial regulatory system through the House on Friday. Mr. Chairman, thanks for joining us.

REP. BARNEY FRANK (D-MA), CHAIRMAN, HOUSE FINANCIAL SERVICES

COMMITTEE: Thank you, Rachel.

MADDOW: What about these promises from the banks that they will start lending more. Do you believe them?

FRANK: I"m very skeptical. You know, they also told the president that, gee, they were really surprised to find out that their lobbyists, who they"re paying a significant amount of money, were actually fighting us every step of the way. I"m not skeptical, but I just deny any notion that we"ve been in a death struggle with these people for months.

And it turned out the bosses didn"t know what they were doing. I do want to make one distinction, by the way. The community banks, the small banks who, on the whole, didn"t get the TARP money. Many of them are willing - we have a separate problem there.

I"ve been told in many places - I travel around and try to meet with the local bankers, the community bankers. They didn"t get involved in these exotic franchises. They didn"t cause the problem and they didn"t, on the whole, make the bad subprime loans.

They have been told by some of the bank examiners, who work for the federal regulators, to be careful. (UNINTELLIGIBLE) the culture of the bank examiners. In the history the world, nobody who works in the FDIC, where they control the currency, has ever been yelled for a loan that should have been made and wasn"t. All the abuse came from loans that were made and shouldn"t have been.

And we"ve been pressing the regulators to say, look, don"t overreact. We do want more loans. The top people, though - part of what we try to do in the regulations that you just described - we want to get them out of some of the exotic things they"ve been doing.

For instance, Paul Volcker, a very distinguished, fairly conservative guy, urged us to stop big banks from proprietary trading. That is, swapping these instruments on their own account. They don"t make money by making loans and getting the interest on the loans. They make money by the financial manipulation.

We"ve empowered the regulators to make them stop it. We"ve tried to cut back on what they make from derivative traders by putting them on exchanges where the price were going to down.

So the short answer is the big banks have found a lot of other ways to make money and haven"t been making loans. The small banks - some have been willing to make loans and have been restricted. So the answer to your question, again, is I"m very skeptical.

MADDOW: There has been, of course, criticism from the left that in regulations, some of the big banks are going to be getting a lot of what they want like the Consumer Financial Protection Agency, which seems great. A lot of institutions exempt from oversight (UNINTELLIGIBLE).

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FRANK: Here"s the way that works. Nobody will be exempt from the rules they write. They write rules for every bank - not just banks, by the way, payday lenders and the non-banks that have been bumped.

So everybody is covered by the rules. And everybody who has a complaint about any bank goes to them. When it comes to the ongoing examination, banks with $10 billion in assets or less are not regulated - are not going to be examined by the consumer agency. But the big banks, banks over $10 billion will be.

And by the way, people have noted, yes, when you exempt the banks under $10 billion, you exempt 98 percent of the banks for 20 percent of the assets. The banks above $10 billion have 80 percent of the assets. So 80 percent of the bank assets and all the big banks are fully - get the full impact of the consumer agency.

MADDOW: What about the worry that the derivatives market, there"s

great opportunity to finally regulate the derivatives market which has been

sort of wild west for so long. Are there loopholes in the derivative

regulations are we going to get those -

FRANK: Well, not loopholes. Here"s the intellectual (UNINTELLIGIBLE). There are two types of people that use derivatives. They are financial entities, the banks, investment houses who make money off of them.

If they are involved between themselves, have to go on an exchange and trade in a fully public way. Then we have the end-users, the airlines, farmers, John Deere, Boeing, people who use the derivatives but get them a lead to control for commercial risk.

We wanted to push them on to exchanges, to be honest, that sort of help. They had enough political support to say, we"re nervous about that. So if you are legitimately hedging for a commercial risk, you have to make it public. And you have to make the price - so there will be no more of the darkness.

But you don"t have to go on the exchange. The key point though is this, and this is where a loophole would come in - who decides what"s what? And under our bill, the Securities and Exchange Commission or the Commodities Futures Trading Commission are the ones who decide it.

So we think that"s the way - in other words, yes, if you are Boeing or - and you are saying, look, "I"m not trying to make money off this. I just want to control for volatility and currency. And I"m hedging but only for that reason and I"m not putting anybody at risk." If the CFTC or the SEC finds that that"s true, you"re out. But for the financial entities, they would be covered.

MADDOW: Is there any chance that the bill gets stronger in the

Senate? Or is that going to be definitely get weakened in the Senate

because of the banking industry and others -

FRANK: Well, you know, the banking industry and, you know, this terrible de facto amendment of the U.S. Constitution that says you need 60 votes instead of 51. It"s terribly antidemocratic with a small D.

I worry about that. Sen. Dodd is really trying very hard. And he"s been unfairly criticized by other people. And I think he is - I know he"s dedicated to fixing this. And at any rate, when we go into conference, what I"m confident is we"ll be able to work this out. And then it"s an up or down vote.

Although, I"ve got to say, you know, no Republican voted for any of this. And when the Republicans got to make their key motion, the motion to recommit, which is the best effort to - they offered a motion which said, we"re going to take back all the TARP money, which bothered me because now we"re trying to get the TARP money to the unemployed to help pay mortgages and to small banks.

They had zero regulation. In the final bill they offered, there was nothing about any form of regulation. Their position is, please stop picking on big banks.

MADDOW: Congressman Barney Frank, the chairman of the Banking Committee in the House who"s had a very busy year. Thank you for coming in.

FRANK: Thank you, Rachel. Good to see you.

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