US President wants authority to wind down any non-bank financial company “that poses a systemic risk”

The Obama administration is seeking powers to shut down troubled financial institutions like AIG to avoid the need for future bailouts. US Treasury Secretary Timothy Geithner called for new powers to take over big non-bank financial companies, when giving testimony to the House of Representatives Financial Services Committee. Federal Reserve Chairman Ben Bernanke backed him. President Barack Obama said, in a news conference on 24 March: “Keep in mind that it is precisely because of the lack of this authority that the AIG situation has gotten worse. We should’ve obtained it much earlier so that any institution that poses a systemic risk that could bring down the financial system, we can handle, and we can do it in an orderly fashion that quarantines it from other institutions.”
Earlier, it emerged that AIG warned the government of “catastrophic” consequences should it not receive its latest bailout funds. In a 21-page draft AIG presentation dated 26 February, circulated among US federal and state regulators, AIG warned that there would be turmoil around the globe if the government allowed it to fail. The presentation said AIG needed immediate help to prevent a “catastrophic” collapse that would be worse for markets than the demise of Lehman Brothers and “which cannot be stopped except by extraordinary means”.

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