Charlie Rose Talks to Barney Frank

Did you get most of what you wanted in the Dodd-Frank reforms? A lot of people think the banks got their way, but bankers say they're not happy about them.
The truth is the latter. I didn't get everything I wanted. I got better than 90 percent. Actually, there was one thing in it that I didn't want, and it's become a major focal point. That's the debate between the credit-card companies and the merchants. It's important, but it wasn't a cause of the crisis, so we did not have that in the House bill. But here's the key point: The lobbying power doesn't come from the big banks. The community banks beat the big banks. It's a good thing about America. Money is important, but votes will beat money any day.

The banks also say they don't know how this will play out until all the new rules are defined. They say a lot of power for this falls to the regulators.
Some of it does, although there are limits. For instance, we say no more "too big to fail." From now on, if an institution fails, it goes out of business. We made it illegal now to do what was done in 2008. I don't say that critically. Hank Paulson and Ben Bernanke—whom I admire—they had no option. One of the things we did was respond to Hank Paulson's request that we give him some options. If a large institution fails, here's the problem: It's got debts to so many different people who, in turn, have debts. The crash of one of those institutions can reverberate. So do you pay their debts or not? In 2008 the answer was either you pay all the debts or none. Legally you had no choice.

We have death panels now, but they're not for old ladies. If a bank can't meet its debts, that bank is put out of business. The shareholders lose everything. The board of directors and the officers are fired. The federal government may then step in and pay some of the debts because it's possible that the debts will spiral in that way. But if the government has to step in, pay the debts as it did for AIG (AIG) and as it didn't do for Lehman Brothers, whatever it pays out will be recovered by an assessment on financial institutions that have more than $50billion in assets. So we have banned the notion that if a bank fails, it's going to be kept in business or that the taxpayers will pay off the debt.

What about the Republicans' intention to water down Dodd-Frank?
They'll be hard-pressed to do it. They won't be able to change things substantively for two reasons. First of all, the Senate won't go along and the President won't go along. Second, there's a difference here between financial reform and health care and the environment. Where health care and the environment are concerned, Republicans are united. But when it comes to financial reform, not so much. Free-market conservatives believe derivatives should be unregulated. The Tea Party is not crazy about derivatives. There's a populist element. They don't mind us regulating credit cards. They don't mind some of this regulation.

Some people don't mind regulation even though they don't like Big Government?
What the Republicans are doing is they're trying to reduce the funding that goes to the agencies to administer the bill. And it's particularly the case in derivatives, which were totally unregulated and led to a large part of the problem. AIG got into trouble over derivatives. They owed much more money than they could ever pay off. We gave more power to the Securities and Exchange Commission and the Commodity Futures Trading Commission to regulate derivatives. The Republicans in the House have refused to appropriate the money for them that they need. So that's very much an issue.

Another big issue is Elizabeth Warren and whether she'll end up running the Consumer Protection Bureau.
Elizabeth Warren is a very thoughtful, shrewd woman. And she believes very much in the market. What we're doing to derivatives is to force more of them into a market-type operation rather than a one-on-one private negotiation. I find some of my friends in the business community like competition as a spectator sport ... but they often have reasons why competition in their case would be destructive. Elizabeth Warren believes in it. When you look at what she's talking about doing, banning the bad mortgages, look, everybody agrees that mortgages went to people who shouldn't have gotten them. One of the things we did was to make it illegal to give mortgages to people who couldn't afford them. And she's going to administer that. I welcome [Republicans] making a fight over that.

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