The Obama administration will continue to seek the authority to place non-bank financial institutions in receivership, Treasury Secretary Timothy Geithner said today.
Passing legislation that would expand federal receivership authority to include systemically important non-bank financial institutions such as American International Group Inc., New York, is the centerpiece of Obama’s initial effort to strengthen regulation of financial services companies, Geithner testified during a hearing on the Troubled Asset Relief Program organized by the TARP Congressional Oversight Panel.
Even though the government now owns 80% of AIG, there is no “legal framework” for the U.S. government to place the troubled company into receivership, Geithner said.
Legislation the Obama administration has proposed would give the Federal Deposit Insurance Corp. authority to place large, non-bank financial institutions into receivership and either rehabilitate them or liquidate them.
The House Financial Services Committee is expected to vote on the proposal by late May, before Congress departs for its Memorial Day recess.
Rep. Jeb Hensarling, R-Texas, a member of the oversight panel and a member of the House Financial Services Committee, criticized the Treasury Department’s efforts.
“Most people are unimpressed with the Treasury’s management of AIG,” Hensarling said during his opening remarks.
Hensarling elicited Geithner’s discussion of federal receivership authority, by noting that Federal Reserve Board Chairman Ben Bernanke recently had testified that the Fed had lacked the authority in late 2008 to take direct control of AIG.
“Certainly, you, or he as the representative of the federal government, has that authority today,” Hensarling said. “I want to know what the exit strategy is for the U.S. government from AIG.”
Geithner rejected Hensarling’s premise.
“We are without the legal framework to deal with a financial crisis caused by an institution like AIG,” Geithner said. “This is a tragic failure. 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.”
One reason the government needs expanded receivership authority is to limit the effect the problems at a company such as AIG could have on other insurance companies, Geithner said.