"administration will urge Congress to grant it the authority to take over major troubled instutions"

Geithner urges overhaul of financial regulations

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON – Treasury Secretary Timothy Geithner said Monday that the severe banking crisis shows the U.S. financial system failed a major test and is in need of an overhaul.

Geithner told a Washington conference that the Obama administration plans to work with Congress to put in place a stronger, more stable system with a modernized government regulatory structure.

"Our system basically failed its most fundamental test," he said in remarks to a conference sponsored by the Wall Street Journal. "It was too fragile."

Geithner will appear with Federal Reserve Chairman Ben Bernanke on Tuesday before the House Financial Services Committee which is examining the government's handling of the bailout of troubled insurance company American International Group Inc.

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The official, who spoke on condition of anonymity in advance of Geithner's testimony, said he would "focus on the need for the government to address companies and markets that pose systemic risks to our financial system, ensuring that we close the gaps in the regulatory framework and that we never have to face situations like AIG again."

The administration will urge Congress to grant it the authority to take over major troubled instutions whose collapse is judged to pose a threat to the entire financial systmem.

The administration would have the power to limit payments to creditors and to break contracts for executive bonuses, the issue that raised the furor with AIG.

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U.S. Seeks Expanded Power to Seize Firms

Goal Is to Limit Risk to Broader Economy

By Binyamin Appelbaum and David Cho
Washington Post Staff Writers
Tuesday, March 24, 2009; Page A01

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president's Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury's role, are still in flux.

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

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