WASHINGTON — It was almost like an old Western.

Former Rep. Barney Frank, sporting a white beard but looking more relaxed after two years out of Congress, returned Wednesday to his old stomping grounds, defending his signature legislative achievement before the House Financial Services Committee.

While there were several panelists testifying in the wake of the Dodd-Frank Act's 4th anniversary this week, Frank was clearly the star of the show.

The Massachusetts Democrat unsurprisingly defended the financial reform law, yet also indicated he disagreed with regulators on implementation of some elements and a push by Sen. Elizabeth Warren to restore Depression-era rules separating banking from other activities.

Following are three key takeaways from Frank's return to the front lines.

Frank is concerned about some actions regulators are taking.

While he largely defended work on the financial reform law, the former congressman did lay out several ongoing concerns for regulators implementing its many provisions.

He said one of his biggest concerns remains efforts to align two major mortgage rules mandated under the law. Regulators are still working to finalize the risk retention rule, which would require lenders to retain at least 5% of the risk for loans they securitize, unless the loan fits the criteria of a "qualified residential mortgage." In their latest proposal, regulators said that any loan that meets the Consumer Financial Protection Bureau's separate "qualified mortgage" rule would also qualify as QRM, a decision Frank derided.

"I believe this is a grave error, and contrary to the assertion that it would best carry out the statutory intent, significantly repudiates it," Frank said in written testimony submitted Wednesday. "Readers of the proposal will have a very hard time understanding why Congress would have created two separate categories, in two separate parts of the statute, if it intended they would be treated identically."

He also pushed back on the need for asset managers to be designated as a systemically important financial institution, a decision the Financial Stability Oversight Council is weighing.

"If that's all you do is asset management or sell life insurance, I don't think you should be a SIFI. For one thing, I think they have enough other things to do. And there is no sign of their causing problems," Frank said.

Separately, Frank said several times that he largely agreed with a witness at the hearing representing derivatives end-users, who have been arguing that non-financial institutions trying to hedge interest rate, currency and commodity price risks should be exempt from certain swaps rules.

Frank is wary about bringing back the Glass-Steagall Act and breaking up the big banks.

Frank downplayed as unnecessary proposals by Warren, D-Mass., and others to bring back the Glass-Steagall Act, which would separate commercial and investment banking activities.

"I think the things I talked about as the problem were the invention of financial derivatives without backing, credit default swaps, insurance not being regulated like it should be regulated [and] securitization of mortgages. Glass-Steagall wouldn't have stopped any of that," he said. "Nothing in Glass-Steagall would have kept AIG from coming to the Fed and saying, we own $170 billion in credit default swaps and we have no idea how much we owe or how to pay it off."

He also raised questions about efforts to break up the big banks, asking how exactly that process would work in practice.

"My question is, what's the level at which you've got to get them down? Remember, the precipitating the event of the crisis in 2008 was the failure of Lehman Brothers, so presumably if you think the answer is that no bank can be too big that its disappearance causes a tremor, then the biggest you can be is Lehman Brothers at the time," Frank said. "And then the question is, how do you get there? How does the federal government order this dismantlement?"

Still, Frank defended the core provisions of the reform law, arguing that it ends "too big to fail."

Frank repeatedly pushed back on a report issued by House Republicans earlier this week, which charged that the reform law failed to stop the government from bailing out distressed institutions.

"The argument is … in a financial crisis like that, there would be overwhelming political pressure on a Treasury secretary to ignore federal law and use public money indefinitely to keep an institution in business," said Frank. "I don't know in what universe people have been living — I think there would be enormous political pressure not to do anything at all. I cannot think of any of these past efforts that would now be legal under our bill."

But the fight over "too big to fail" remains far from settled. The Government Accountability Office is expected to release a much-awaited report next week examining the subsidy large institutions receive for the market perception that "too big to fail" still exists.

And Rep. Jeb Hensarling, R-Texas, chairman of the banking panel, indicated at the hearing that the committee will continue to study the issue in coming months. The banking panel is working with the House Judiciary Committee, which has produced a discussion draft on a bankruptcy alternative to Dodd-Frank's orderly liquidation process, he said.

"Before the end of this Congress, we will have also addressed Dodd-Frank's greatest sin of co-mission, codifying too big to fail and taxpayer-backed bailout funds," Hensarling added in his opening statement.

Victoria Finkle is American Banker's Capitol Hill reporter. 

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