UPDATE 1-US' Geithner sees deal on regulatory wind-down

(Adds details, background, Geithner quotes)

By Corbett B. Daly

WASHINGTON, March 29 (Reuters) - The Obama administration and lawmakers on Capitol Hill are "getting close" to a deal on language that would allow the government to shut down large, failing firms, U.S. Treasury Secretary Timothy Geithner said on Monday.

"You need to be able to shut down and dismember, unwind, sell the firm that is failing but make sure that process doesn't end up imperiling the rest of the financial system," Geithner said in an interview with CNBC television.

"We don't want taxpayers ever again to be exposed to bearing any of the costs of these kind of large financial crisis. So I think on those issues we are getting pretty close," he said.

Geithner said the Obama administration's decision to sell its 7.7 billion Citigroup Inc (C.N) shares this year is a sign of how far the U.S. financial system has recovered in the 14 months since President Barack Obama took office.

"This is just the next stage of us moving to make sure we're getting out of the financial system as quickly as we can because we don't want to be in the business of owning a share in a private company a day longer than necessary," Geithner said.

The Treasury, which acquired an outsized stake in the bank during 2008-09 bailouts said it would sell its common shares into the market "in an orderly and measured fashion."

The United States owns 27 percent of the bank's shares and stands to earn about $7 billion in profit if it can sell the shares near current values -- bringing its total estimated profit to more than $15 billion.

In the wide-ranging interview, Geithner reiterated his position that the U.S. Treasury is firmly committed to backing the debt of mortgage finance giants Fannie Mae FNM.N and Freddie Mac FRE.N.

"We have made it clear we will provide whatever amount of capital is necessary to make sure that those two institutions can meet their obligations -- past and future," Geithner said.

"That's a very important commitment and I'm going to stick to that," he added.

House Financial Services Committee Chairman Barney Frank caused a stir in financial markets earlier this month by suggesting that Fannie Mae and Freddie Mac bondholders do not have the same guarantees as Treasury bondholders. He later backed off those comments.

On China, the Treasury chief said expects a more flexible exchange rate regime going forward.

"That's an objective they've stated in public, that's a commitment that they've made, China has a very good record if you look back over the past three decades of setting out broad reforms and delivering on those reform commitments," Geithner said.

"I think it's quite likely China will decide it's in its interest to move to a more flexible exchange-rate system."