Geithner Seeks Regulatory Powers

Treasury Secretary Timothy Geithner today (Tuesday) called on Congress to grant him new powers to regulate major financial institutions like AIG (AIG), whose failure could pose huge risks to the U.S. financial system and the broader economy.

Geithner in particular requested for powers similar to those of the Federal Deposit Insurance Corporation (FDIC), which has authority to seize control of banks, take over their bad assets and sell them.

The powers being sought by the Treasury Secretary would allow setting up a conservatorship or receivership for a failing financial company. The government would have the power to take control of the firm and sell or transfer parts of it, in order to reduce its risk to the financial system.

Geithner also said the government would have the power to “renegotiate or repudiate” a company’s contracts, including those with its employees. This comes in wake of outrage over the AIG bonus payments, which were stated to be mandated by contracts agreed to before the government bailout of the company.

It was argued that if such powers were in place last year, the government could have used them to better handle AIG and Bear Stearns, which were bailed out by the government, and Lehman Brothers, which was not rescued and was forced into bankruptcy.

Government bailouts of AIG, Citigroup (C), Bank of America (BAC) and others involving billions of dollars have brought into focus the need to better handle the “too big to fail” financial companies.

Federal Reserve Chairman Ben Bernanke also emphasized the “urgent need for new resolution procedures for systemically important nonbank financial firms.” Earlier, while reacting to the AIG’s bonuses, President Obama had talked about developing tools to “prevent ourselves from getting in a situation where an AIG can threaten the entire financial system.”

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