Geithner wants new financial wind-down authority

WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner on Tuesday joined the Federal Reserve in calling for authority to wind down failing non-bank financial firms that threaten the financial system.

Geithner, in prepared testimony before the U.S. House of Representatives Financial Services Committee, said Congress should approve legislation giving the government the ability to step in to put a major institution under conservatorship and avoid a damaging bankruptcy.

"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. "The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context."

Geithner is expected to face tough questioning from the panel over the government's handling of multiple bailouts for American International Group at a cost of up to $180 billion, and the controversy over $165 million in recently paid bonuses to employees of the unit that nearly caused AIG's collapse.

The Bush and Obama administrations both determined that a failure of the company would be disastrous for the global economy and would trigger the collapse of many other institutions.

The proposed "resolution authority" would allow the U.S. government broad discretion to provide financial assistance to such firms by making loans, purchasing obligations or assets, assuming or guaranteeing liabilities and buying an equity interest.

"This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non-bank financial institutions," Geithner said. "Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks."

(Reporting by David Lawder and Glenn Somerville)