WASHINGTON — Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke sought broad new powers Tuesday to regulate tottering nonbank financial companies like insurance giant AIG, and President Barack Obama said he hopes "it doesn't take too long to convince Congress" to grant them.
"AIG highlights broad failures of our financial system," Geithner told the House Financial Services Committee. "We must ensure that our country never faces this situation again."
Along with the new authority to regulate and, if necessary, take over giant financial companies whose collapse might endanger the broader economy, the administration wants increased oversight and controls of previously unregulated markets such as hedge and private equity funds.
Obama told reporters after an Oval Office meeting with Australian Prime Minister Kevin Rudd that he was "very confident" the United States will work in concert with other nations to stabilize the global financial system.
At the same time, Bernanke revealed that he had considered filing suit to keep AIG from paying millions in executive bonuses but that his legal advisers counseled him against it.
Geithner acknowledged that the current climate of anger, including the furor over those retention bonuses, will complicate any effort by the Obama administration to get more bailout money from Congress. "We recognize it will be extraordinarily difficult," he said.
The administration sought to use that rancor to build support for its proposals.
Geithner joined Bernanke in calling for greater governmental authority over complicated and troubled financial companies — power they likened to the authority wielded over banks by the Federal Deposit Insurance Corp. That includes the power to seize control of institutions, take over their bad loans and other illiquid assets and sell good ones to competitors.
AIG is a globally interconnected colossus, with 74 million customers worldwide and operations in more than 130 countries. The government decided it was simply too big to let fail.
Geithner, Bernanke and New York Fed president William C. Dudley testified in a rare joint appearance before the panel. Their testimony came a day after the Fed unveiled a new bank rescue plan under which the government would take responsibility for up to $1 trillion in sour mortgage securities with the help of private investors.
Much of Tuesday's discussion centered on ways to help the government better deal with future AIG-like companies whose failure could devastate the financial system and drag down the economy.
"The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at nonbanks as it has in the bank context," Geithner said.
Asked if AIG would have been treated any differently, including the payment of $165 million in bonuses this month, if such powers had existed last September, when the Fed began the government bailout of the insurer, Bernanke said, "Quite differently. … The bonus issue would not have arisen."