Saying the old regulatory system was broken and nothing short of comprehensive reform could repair it, a Treasury Department official touted Dodd-Frank as the tonic necessary to restore fiscal responsibility and create a more stable banking system. Assistant Treasury Secretary Michael Barr said the landmark Wall Street Reform and Consumer Protection Act signed into law by President Obama in July "replaced a failed regulatory system that over time had been outgrown and outmaneuvered by the very institutions, markets and instruments it was responsible for regulating and constraining." The new set of rules and regulations provide the framework for economic growth, job creation, responsible homeownership, and increased middle-class prosperity, Barr told the banking law committee of the American Bar Association in Washington Friday. Barr said financial institutions were "essentially regulated by what they called themselves rather than what they did" but that will change once Dodd-Frank reforms are established and put into practice. "In the years leading up to the crisis, huge amounts of risk moved into the shadows outside the banking system in search of lighter regulation, lower capital requirements, weaker consumer protections, and more favorable accounting treatment," Barr said. He said federal regulators lacked authority to set capital requirements on major financial firms that that operated as businesses outside the domain of traditional bank holding companies. But the global-banking standards adopted under Basel 3 in September increase the minimum common-equity requirement for banks to 4.5% from 2% and order banks hold a capital-conservation buffer of 2.5%, as well. Although, some wonder if the new parameters can be met. Echoing the Obama Administration's mantra, Barr said the too-big-to-fail mentality of some larger firms led to excessive risk taking because there was the assumption the government would bail these firms out if their investments went belly up. "It created an unlevel playing field with smaller firms," he said. "This was an advantage for them in the marketplace.  Creditors and investors believed that large firms could grow larger, take on more leverage, engage in riskier activity – and avoid paying the consequences should those risks turn bad.  It was a classic problem of moral hazard." This is no longer a problem because Dodd-Frank gives the government the necessary authority to wind down these firms "in a way that will protect taxpayers and our economy." Barr also pointed to increased power granted to Financial Stability Oversight Council as signs of additional regulatory might. Write to Jason Philyaw.