New York Times:
WASHINGTON — The Obama administration is renewing calls for Congress to provide new authority to take over financial institutions in distress, expanding its existing powers to include insurance companies and other less-regulated market players.
"The United States government does not have the legal means today to manage the orderly restructuring of a large, complex non-bank financial institution that poses a threat to the stability of our financial system," the Treasury secretary, Timothy F. Geithner said in a statement prepared for delivery before the House Financial Services Committee.
The issue here is that current law granting the government powers to restructure financial institutions only contemplates banking institutions. The administration wants to expand that power to include non-bank institutions like AIG.
The resolution authority — to take over non-bank financial institutions that pose a systemic risk until problems are resolved — was intended to be part of the administration’s comprehensive overhaul of the government’s financial regulatory system, which has been delayed as the Treasury dealt with immediate crises.
White House and Treasury officials decided amid the recent furor over A.I.G.’s bonuses to push for the resolution authority now.
This won't be a fundamentally new power of government; it's more like a refresh of existing law so that it can adequately address the current state of the market and deal with firms like AIG.
As Geithner explained during today's hearing, if Treasury had had the authority to seize AIG last September, we could have avoided many of the problems that we've experienced with the AIG bailout.
Although it's too late to change the law to resolve the initial problems with the AIG bailout, this expanded authority is an important part of strengthening our long-term ability to deal with these sorts of problems.