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Geithner, Bernanke Want Power to Seize Struggling Companies

The nation's financial principals, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, testified before the House Financial Services Committee on Tuesday, to rally congressional support for expanded regulatory authority - authority that would allow them to seize control of struggling financial institutions that are deemed too big to fail.
Such support may not be too hard to muster, considering the political uproar and public outrage witnessed the past couple of weeks over the AIG bailout and the company's ensuing bonus payments. The fallout from AIG has provided fodder for the regulation campaign, although New York Attorney General Andrew Cuomo announced late Monday afternoon that 15 of the top 20 bonus recipients at AIG have given back their bonuses and assured reporters that all bonuses would be returned in full.
In his news conference on Tuesday night, President Obama said the government could have handled the AIG bailout more effectively if it had the same seizure power over large financial companies as it did over failed banks. ""It is precisely because of the lack of this authority that the A.I.G. situation has gotten worse,"" Obama said, predicting that now, ""there is going to be strong support from the American people and from Congress to provide that authority.""
Both Geithner and Bernanke submitted proposals to the House Financial Services Committee on Tuesday that outline regulatory reform and eliminate gaps in supervision. Specifically, they are calling for a new ""resolution authority,"" designed to give the federal government the tools it needs to unwind an institution of the size and complexity of AIG.
The government officials said that under this new authority, all institutions and markets that could pose systemic risk will be subject to strong oversight, including constraints on risk-taking. They argued that regulators must apply stringent standards, not just to protect the soundness of individual institutions, but to protect the stability of the system as a whole from another economic cataclysm. The new resolution authority would allow the government to take control, seize contracts, restructure, and possibly shutter any kind of financial institution that was in trouble and whose failure was considered big enough to destabilize the broader financial system.
The federal government has long had the power to take over and close banks and other deposit-taking institutions who are insured by the FDIC and subject to federal oversight. But the administration and the Fed want to extend this authority to insurance companies, investment banks, hedge funds, private equity firms, and other large financial institutions.
Geithner told lawmakers, ""In addition to problems with executive compensation, the financial crisis has revealed systemic gaps in the regulatory structure governing our financial markets. The lack of an appropriate regulatory regime and resolution authority for large non-bank financial institutions contributed to this crisis and will continue to constrain our capacity to address future crises.""
The House Financial Services Committee said it plans to vote on legislation that would grant the proposed extension of authority, possibly as early as next week. President Obama has asked congressional leaders to put the legislation on a fast track, even before they deliberate on a full system overhaul.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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