NU Online News Service, April 21, 3:17 p.m. EDT
WASHINGTON–Federal authorities need legislation to give them legal authority to step in when a huge non-bank company like American International Group gets into financial difficulties, Treasury Secretary Timothy Geithner told Congress today.
He said a measure to give federal regulators power to put non-banking institutions such as AIG in receivership is the "centerpiece" of White House plans to strengthen financial services companies' regulation.
Secretary Geithner made his comments in an appearance before the Congressional Oversight Panel on the Troubled Asset Relief Program.
He said under questioning that, even with ownership of 80 percent of American International Group, there is no "legal framework" for the U.S. government to place the troubled company into receivership.
Moreover, Secretary Geithner said, securing that authority through legislation the administration has proposed to Congress is the "centerpiece of what the president is trying to do" to deal with large, troubled institutions.
The legislation would give the Federal Deposit Insurance Corporation authority to place such institutions into receivership and either rehabilitate or liquidate them.
A vote on such legislation by the House Financial Services Committee is expected before Congress departs for its Memorial Day recess in late May.
Mr. Geithner made his comments at an oversight hearing on TARP in response to a question from Rep. Jeb Hensarling, R-Tex., a member of the oversight panel.
In his question, Rep. Hensarling said that Federal Reserve Board Chairman Ben Bernanke testified recently before the House Financial Services Committee that last fall the Fed lacked authority to place AIG into receivership, i.e., take direct control of the company.
"Certainly, you or he as the representative of the federal government has that authority today, and I want to know what the exit strategy is for the U.S. government from AIG?" Rep. Hensarling asked.
In reply, Secretary Geithner disagreed. "We are without the legal framework to deal with a financial crisis caused by an institution like AIG," he said.
"This is a tragic failure," Secretary Geithner said. "We still do not have the authority to intervene or manage effectively the risk posed by institutions like AIG."
"We need to deal more quickly, more effectively with problems posed by institutions like AIG," he said, "especially to limit the impact of these problems on other insurance companies."
In opening remarks, Rep. Hensarling had noted, "Most people are unimpressed with the Treasury's management of AIG." He did not elaborate.
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