Talk Radio News Service: News, Politics, Media

By Ravi Bhatia - Talk Radio News Service

During testimony given before the House Financial Services Committee Thursday, Treasury Secretary Timothy Geithner echoed the White House's support for Committee Chairman Rep. Barney Frank’s (D-Mass.) proposal that would grant the Federal government the authority to take control of failing financial firms.

Frank's legislation would create a fund paid for by businesses with over $10 billion in assets in order to bear the costs of big firms that fail. Such costs were incurred by American taxpayers in the 2008 bailouts of banking company Citigroup and General Motors. It would also create a Financial Oversight Council, led by Geithner, to set policy and stricter regulations on the firms, and mediate arguments between federal agencies.

“It’s not about redemption for the firms that make mistakes,” Geithner said. “It’s about unwinding them in a way that doesn’t cause catastrophic damage to the economy.”

The Committee will vote on the legislation as early as next week. The committee's Ranking Republican, Spencer Bachus (R-Ala.), opposed the legislation and the speed at which it is being pushed.

“The draft legislation that was supposed to be the subject of this hearing was not received until Tuesday afternoon,” he said. “I doubt that any of today's witnesses, with the possible exception of Secretary Geithner, have had the opportunity to fully comprehend the legislation entirely.”

“Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority," added Bachus.

In a statement released before her testimony on Thursday, Federal Deposit Insurance Corporation Chairman Sheila Bair said that the proposed Oversight Council lacks the authority to “effectively address systemic risks.” She recommended that the President appoint an independent chairman, subject to Senate confirmation, to fill the role Geithner would otherwise.

“A Council with regulatory agency participation will provide for an appropriate system of checks and balances to ensure that decisions reflect the various interests of public and private stakeholders,” Blair said.

Geithner said that he believes Frank’s bill will update the federal government’s financial regulatory system to match what he called, “21st century” challenges.

“The Council will have the obligation and the authority to identify any firm whose size in leverage and complexity creates a risk to the system as a whole and needs to be subject to heightened, stronger standards on leverage,” he said. “The rules in place today are inadequate and they are outdated. We’ve all seen what happens when in a crisis, the government is left with inadequate tools to respond.... That is a searing lesson of last Fall.”