The administration wants Congress to act quickly on legislation that would give it sweeping new powers to seize financial firms whose collapse could jeopardize the U.S. economy, Treasury Secretary Timothy Geithner said Wednesday.
In a speech in New York, Geithner said the country should never again be faced with having to choose between a meltdown of the financial system and massive taxpayer bailouts.
The new legislation, which Geithner said will be sent to Congress this week, would give the administration the power to take over financial institutions like troubled insurance giant American International Group Inc.
That would give the administration the same authority to seize non-bank financial companies as federal regulators have with insolvent banks.
"One of the key lessons of the current crisis is that destabilizing dangers can come from financial institutions beyond banks, but our current regulatory system provides few ways to deal with these risks," Geithner said in remarks to the Council on Foreign Relations.
The House Financial Services Committee could take up the new legislation as early as next week. The administration is hoping to use the public outrage over $165 million in bonuses provided to AIG, after it had received more than $180 billion in government support, to win congressional approval for the new powers.
"AIG highlights broad failures of our financial system," Geithner. "We must ensure that our country never faces this situation again."
Geithner is scheduled to testify before the House committee on Thursday and will outline the administration's proposals for an overhaul of the entire financial regulatory structure. The legislation will seek to limit risk-taking at firms that could set off severe damage and will raise regulatory requirements to make sure banks have sufficient resources to withstand an economic downturn, he said.
The administration in the coming weeks also will propose new and stronger rules to protect consumers and investors against financial fraud and abuse.
"These will help us deal in the future with threats like the practices in subprime lending that kicked off the current crisis," Geithner said.
Meanwhile, Geithner's plan to relieve banks of their toxic assets using a combination of public and private funds continues to face scrutiny from critics.
"We'll have to wait and see. This looks like a plan similar to what Secretary [Henry] Paulson originally proposed - the devil is always in the details," Sen. Richard Shelby, R-Ala., said on CBS' The Early Show Wednesday. "We have to see how this is priced and how it works, because if you price these assets too high, people make a windfall - probably off the taxpayer. If it's too low, the banks won't sell them.