Don't count Esther George, president and chief executive officer of the Federal Reserve Bank of Kansas City as a fan of the Dodd-Frank Act's financial reforms.

In a speech Friday at the Regional Policy Forum on Financial Stability and Macroprudential Supervision in Beijing, a conference focused on international efforts to ensure a more stable financial system, George fretted that governance and market discipline is "at risk of being diluted by a panoply of regulations” and that the Dodd-Frank Act's complexity could lead to future bailouts, rather than preventing them.

"This act contains many provisions that legislate things bankers should naturally do with the right incentives in place," she said. "The act states that bankers cannot make a mortgage loan to a person that does not have the ability to repay the loan. The act also requires bankers to build up a capital buffer in prosperous times to prepare for more stressful times. Rather than adding regulation, we could better align incentives by allowing stockholders, unsecured creditors, and bank management to bear full responsibility for losses incurred by their institutions.”

George questioned whether the U.S. was “adding complexity to financial regulation" without increasing the effectiveness of supervision."

“[The Dodd-Frank Act] is hundreds of pages long and its mandated rulemaking, by some estimates could run to as much as 30,000 pages,” she said. “In contrast, one of the most significant pieces of U.S. banking legislation, the Banking Act of 1933, is only 37 pages long, and it included such noteworthy steps as the creation of federal deposit insurance and the separation of commercial and investment banking.”

“Will more complex regulations contribute to a more stable financial system? After having spent most of my career as a bank supervisor, I have my doubts,” George added. “Supervisory lapses exposed during the crisis were not the result of inadequate regulation.

"Instead, these lapses reflected the failure of supervisors and market participants to ask and pursue answers to the most basic and simple questions.Are credit standards declining, and if so, what are the implications? What happens when the surge in housing prices becomes unsustainable? What will be the outcome when the compensation of key players does not reflect the risks and losses they might impose on their institutions? What is the likely result when the creditors and stockholders of financial institutions are protected against losses? One could argue that posing and answering these simple questions might have given supervisors far better insight into the fate of the financial system.”