This bill does not undermine Dodd-Frank (not that I would mind if it did, but it simply doesn't), and it certainly doesn't undermine the financial system. It's repealing the part of the FDIC that guarantees creditors in the event of the bank going bankrupt. It's repealing the part of the act that makes banks a risk-free investment. The market distortion would be leaving that in place, not repealing it. What this legislation is restoring is that (1) there's no such thing as a risk free investment, and (2) saving your money in a bank is making an investment. Banks are not sure things. Having the article in question in place has caused people to act like they are and so banks have raked in cash that they can then loan out with abandon because if it all goes wrong they're not on the hook for making sure people get their money back. In the absence of that article (i.e., with the passage of this) banks will need to formulate much safer portfolios of investments and mortgages in order to convince people to save their money with the bank. You take this safety net out of Dodd-Frank and the free market will naturally push the banks to become safer. Leaving it in place is in fact what is distorting the financial market.