Article published on the 2009-03-24 Latest update 2009-03-24 16:21 TU
Geithner gives his opening statement as Federal Reserve Chairman Ben Bernanke (R) listens
The two cited the controversial bailout for the AIG insurance multinational as proof that Congress should overhaul the rules governing the state's powers.
"AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms," Bernanke told the House of Representatives financial services committee.
"If a federal agency had had such tools on 16 September, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate."
All important financial firms must be subject to "strong, effective consolidated supervision", he said.
"The US 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," Geithner said.
He said that the US regulataory systems is not equipped to prvent the build-up of "dangerous levels of risk", sayinf taht compensation practices have encouraged risk-taking and rewarded shotr-term gains over long-term stability.