Bernanke, Geithner ask House for more powers

25 March 2009

Even as some 15 employees of troubled insurance giant American International Group Inc agreed to return their controversial bonuses, the two spearheads of the US economy - treasury secretary Timothy Geithner and federal reserve chairman Ben Bernanke - asked a Congressional hearing committee for more powers to take control of failed companies.

''As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,'' Geithner said in testimony to a House financial services committee hearing on Tuesday; while Bernanke added, ''AIG highlights the urgent need for new resolution procedures.''

Bernanke and Geithner also called for stronger regulation to constrain the risks taken by firms that could endanger the financial system. They reiterated their opposition to bonus payments for AIG's financial products division, with Bernanke saying he had initially sought a lawsuit to halt them.

While the government controls almost 80 per cent of AIG through stock and warrants, New York Federal Reserve Bank President William Dudley said his bank doesn't have day-to-day management authority over the company. ''Responsibility for AIG's day-to-day affairs continues to rest with AIG's chief executive officer, Edward Liddy, under the oversight of AIG's board of directors,'' he said in his testimony to the committee.

Lawmakers called Geithner and Bernanke to Capitol Hill amid public outrage over the $182.5-billion federal bailout of AIG.

Bailing himself out, Bernanke said that he had debated filing a suit to prevent the payments, but was advised against it. ''It was highly inappropriate to pay substantial bonuses to employees of the division that had been the primary source of AIG's collapse. No lawsuit was filed after the central bank's legal staff counselled against litigation because punitive damages could be awarded if the suit failed,'' he said.