US Treasury Secretary Timothy Geithner wants the Government to be given new powers to regulate large financial companies like AIG that threaten the economy if they fail.

Mr Geithner told the House Financial Services Committee last week a new authority is needed, modelled on the Federal Deposit Insurance Corporation’s control of banks.

“The lack of an appropriate regulatory regime and resolution authority for large non-bank financial institutions contributed to this crisis and will continue to constrain our capacity to address future crises,” he said.

“The proposed resolution authority would allow the Government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest.”

Federal Reserve Chairman Ben Bernanke agrees new resolution procedures are needed.  

“If a federal agency had had such tools on September 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate.”