When Dodd-Frank was signed into law almost four years ago, no group was affected by the sweeping regulatory changes arguably more than the members of the Financial Services Roundtable. Morning Consult’s Timothy R. Homan sat down with Tim Pawlenty, the group’s chief executive officer, last week to talk about what changes he sees on the horizon for financial regulations, what it will take for Congress to pass serious housing reform, and whether the former presidential candidate would consider another run at public office. This interview has been edited and condensed.

Morning Consult: We’re coming up on the four-year anniversary of the implementation of Dodd-Frank. Are we where you thought we would be?

Tim Pawlenty: I think by most peoples’ measure, the implementation of Dodd-Frank has not unfolded as quickly or rapidly as people had hoped or expected. There was a huge crisis, there was going to be a huge public policy response, and that took the form of Dodd-Frank. We think changes were needed. We understand that Dodd-Frank will be the framework going forward, and we’re not calling for its repeal. But we are calling for the implementation of it to reflect common sense and good judgment. We also think that with something that large it’s going to need some tweaks and some adjustments and people should be open to that as well.

MC: Where do you see the Financial Stability Oversight Council stopping with its labeling of nonbanks being systemically important financial institutions (SIFIs)?

TP: With respect to FSOC and the designations, I think they were headed towards designating more and different types of companies as SIFIs. But it seems like they’ve taken a half-a-step back from that to try to better understand the differences between banks and nonbanks as they look at insurance companies, as they look at asset-management companies, as they look at captive and alternative finance companies. We’ve seen a less reflexive, more thoughtful response to some of those issues in recent months than before. Before I think it was just kind of a reflexive presumption that we’re just going to look at size alone and designate some companies from different sectors. But now they really seem to be trying to think through, “How do you take a traditional kind of bank-centric perspective and make sure it’s properly recalibrated as you assess systematic risk in other kinds of companies?” It seems like they’re being genuine and thoughtful about how and whether they may continue to extend those SIFI designations. We would like FSOC to be more transparent about criteria, open up their meetings, allow others to attend the meetings and share information they get with Congress and the public. Obviously, a lot of the information they get, it can’t be, because it’s proprietary financial information. Also keep in mind that if you designate somebody and you aren’t immediately able to tell them what that means from a regulatory and business operations standpoint, that could be very disruptive and have a pretty severe market impact. So you got to think not just about the original designation but the what-does-it-mean-phase in terms of implementation of the designation.

MC: What sort of changes do you feel should be implemented at CFPB in terms of becoming more responsive on both the business and consumer side?

TP: We think more consumer advocacy and appropriate protections are in order, and so we support those goals in that direction. But as applies to the CFPB, we have some concerns. One is the structure: the CFPB lacks some checks and balances. Unlike most over government agencies, it doesn’t have a three- or five-person board that deliberates on major decisions and provide some balance. It’s run by one person and major decisions are up to his – in the future, I’m sure her – discretion and we think it would be better served to have a board there structurally. We also think that they would be better served to have some congressional oversight in terms of appropriations. Right now it’s funded by a fee structure that’s dedicated to CFPB, so CFPB is immune from typical or normal congressional oversight toolkit. So those are some improvements we’d like to see over time. We realize that’s not going to happen overnight. There’s issues around transparency and openness for things like when they have a data model that they’re using to make conclusions, are they willing to share the methodology – the plumbing, if you will – of the data model to see what equations did they use. Is it scientifically and methodologically sound? And if they don’t reveal that it’s hard for people to have a fair process when they’re only told the conclusion without being able to see how the conclusion was reached. The tenets of due process are: notice and the opportunity to be heard. We want, to the extent possible, to have them go through a rulemaking process that gives people formal notice, a fair and full opportunity to be heard and not just, “We’ll issue some informal guidance, we’ll have some enforcement actions and hope everybody gets the message and changes their behavior.” We get that that’s one of the tools in the toolkit, but if you use only that or disproportionately use that, it starts to drift away from the model where people get formal notice, there’s a rule, you can evaluate whether the rule was done properly, procedurally, whether the agency had the authority to actually craft a rule like that. It gives people a transparent view of what’s coming.

MC: Do you think that the CFPB is creating some business uncertainty in that some businesses or actions don’t know how their actions are going to be ruled upon?

TP: Let me step back. Our relationship with the CFPB has been positive. The director, Richard Cordray, has been available, accessible and in most cases reasonable. But underneath him is a lot of bureaucracy and a lot of horsepower that, if not channeled properly, could cause some real concerns. One of which is uncertainty. An example of that is: Many of our members provide wholesale lending to automobile dealers. Automobile dealers are excluded from CFPB oversight, and so the CFPB has become concerned about the disparate impact of auto lending as it relates to members of certain protected classes for discrimination purposes. How the CFPB is going to tackle that, what methodology they’re going to use, what expectations they’re going to have is all kind of opaque at the moment. In other words, not transparent, and so that’s causing a lot uncertainty in the market about: How should we provide that financing? What additional limitations should be around it? What’s our role in training and supervising each transaction in a dealership when we’re really not the dealer? Those are some examples of uncertainty, and that’s having a real impact on the market. Markets don’t want to deploy capital into uncertain environments and so if there’s uncertainty it provides a kind of chilling effect on appropriate calculation of risk and deployment of money.

MC: Some opponents of the Terrorism Risk Insurance Act and the Export-Import Bank have criticized the two programs as being regional issues, not national ones. Why should these be national concerns?

TP: I think one of the best defenses of the Export-Import Bank was provided by Ronald Reagan. He said that it was “necessary leverage” to confront unfair international trade and finance practices by other countries. There’s a lot of arguments that could be made about the Export-Import Bank, but I think he put his finger on it best when he said the rest of the world isn’t playing by the rules and we need some ability to pressure them to change and we need some tools to do that. Our ability to utilize the Export-Import Bank helps in that regard. Having fair trade rules and leverage over other countries regarding trade and finance is something that should interest the whole nation, not just one state, one company or one region.

MC: Should there be some modifications to the Export-Import Bank?

TP: I’m sure it can be improved. This is something that’s been around for 80 years. It’s the creation of the post-World War II era. It’s been authorized, reauthorized, tinkered, tweaked, adjusted, amended by presidents and members of Congress from both parties over eight decades. Time and circumstance marches on. Can there be some improvements and some adjustments? Of course.

MC: Do you have any specific ones in mind?

TP: One of the criticisms is always, “Well, it helps mostly large companies.” But if you look at it not as total dollar amount but as total volume of deals, the total volume of deals disproportionately helps American small and midsized companies. As you think about the benefit to the bigger companies, one of the important points to remember is it helps those bigger companies but also all of their suppliers and subcontractors, which tend to be small and midsized companies. So if you look at Boeing as the poster company for that point, it’s not just about Boeing, it’s about the hundreds and thousands of American companies that have a role in manufacturing or servicing an airplane contract.

MC: Some critics of TRIA question whether, almost 13 years after the Sept. 11 attacks, the country still needs this kind of insurance program.

TP: If we have a large-scale terrorist attack, the government’s going to be involved no matter how you slice it. So the question isn’t: Is the government going to be involved or not? The question is going to be: Would you rather have an orderly process and structure put in place ahead of time that maximizes the private sector’s responsibility in helping to rebuild the damage from an insurance standpoint? The science around underwriting terrorist attacks as an insurance matter is not sufficiently yet developed where you can reliably predict the size, scope and nature of terrorist attacks. In that regard it’s not like weather where the data, the patterns, the science is so developed that they can underwrite for it. That’s a long-winded way of saying it’s difficult to underwrite for a large-scale terrorist attack. And if it’s difficult to underwrite for and you don’t have TRIA, you’re going to have insurance difficult or impossible to get and then you’re going to have people uninsured or unable to get financing for projects that you want to build.

MC: What’s the likelihood of Congress reauthorizing versions of TRIA and the Export-Import Bank before they expire later this year?

TP: It appears like there’s bipartisan momentum for TRIA to get processed to conclusion. It’s going to be changed and modified and reformed, but it looks like it’s got momentum to reach the president’s desk. The Export-Import Bank reauthorization is a little heavier lift in that regard.  It may be that it gets temporarily extended and everybody lives to have the larger fight another day. But that’s better than having it go poof in the night. Our members who are interested in the issue would prefer a longer-term extension so this doesn’t have to be serially debated every six months. A reasonable extension is better than having it flat out expire.

MC: Despite some House Democrats introducing legislation last week that would make changes to Fannie Mae and Freddie Mac, it doesn’t look like Congress is going to take any action.

TP: That’s disappointing. We’re five years removed from the crisis where on a bipartisan basis people agreed that we should get rid of Fannie and Freddie, and we should get rid of Fannie and Freddie, and move to a private-market model and get the taxpayers off the hook, or dramatically less off the hook than they are now. The inability or unwillingness for Congress to advance those issues is disappointing.

MC: What sort of congressional environment is most favorable to GSE reform?

TP: That’s a little hard to predict, but I think if one party or the other took full control of the Congress they would probably tackle GSE in their version of it. The issues are so large and so complex that it seems like it’s difficult for Congress to have the willingness to tackle it absent a crisis. We don’t wish that, we don’t want that, but at the moment there’s no sense of urgency around the issue. We think it is an urgent issue because in its current form the GSEs are in conservatorship and have the taxpayers fully on the hook. Everybody can have their idealized notion around what the future state should look like with respect to the GSEs, but if nothing gets done we’re left with the status quo, which is sort of a worst-case scenario. We would hope that they could move the issue along even if it isn’t everybody’s view of being a perfect version, if it’s substantially better than the status quo, that’s progress in terms of getting rid of Fannie and Freddie and moving towards a more private-market approach.

MC: What’s your sense of where bitcoin and regulation of the virtual currency is headed?

TP: As to bitcoin, it’s too early to tell where that’s all headed but at the moment it appears mostly to be a novelty level of interest and some other folks using it who maybe have more than novelty in mind. But when you see the wild fluctuations and the value of bitcoin, when you see the cyber vulnerability of one of bitcoin’s partners, when you see some of the other concerns that have been expressed, it doesn’t appear to be the kind of place that most people are going to put a lot of their money. You might put a little money in to have some fun and have it be kind of a novelty experience, but it doesn’t appear to be in a shape where most people are going to put significant amounts of money. That being said, obviously financial service companies are going to become more like technology companies, certain technology companies want to become more like financial service companies, so over the next five to 15 years there’s going to be this increasing convergence between financial services and technology that’s going to make the future state look different than the current state. As that happens, it’s important that for the protection of the consumer and markets and transparency that we don’t have a two-tiered system where in one part of the system the traditional players are regulated and transparent and have safety and soundness responsibilities that are not expected in the non-regulated space, because it would create unfair competition. It would also create, in the unregulated space, potential bubbles, potential lack of consumer protections and other issues. If you’re in that unregulated space and you’re doing things that in the traditional form have been regulated – if you act like a bank, quack like a bank, and walk like a bank – you probably need to play by the same rules in terms of regulation, consumer protections, safety and soundness.

MC: How was the transition from public office to this position?

TP: It’s a little bit of a hybrid because I get to stay involved in public policy in this position, which I like. I get to do it at a leadership level as the CEO of this organization. Those are the good parts. The bad parts are that government is dysfunctional in many ways and levels. The transition has been relatively smooth. My role here as CEO is that I oversee the operations broadly, so I don’t always get into the day-to-day aspect of all these issues.

MC: Are you open to returning to public office?

TP: Well, you know, I think I had a full run at it. I was in the Minnesota legislature, was majority leader in the Minnesota House. I was governor for two terms. I had an unsuccessful run for president. So I think I’ve covered the waterfront.

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