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03-25-2009, 12:40 PM
MARCH 25, 2009, 12:22 P.M. ET
Treasury Outlines Details of Bill for New Powers Article
By MAYA JACKSON RANDALL
Getty Images
Treasury Secretary Timothy Geithner at the Council on Foreign Relations in New York.
WASHINGTON -- The Treasury Department Wednesday revealed key details of a draft bill it plans to send to Congress this week to give the Treasury unprecedented emergency powers to wind down faltering nonbank firms such as American International Group Inc. (AIG).
Under Treasury's legislation, the new "resolution authority" could be funded through a mandatory appropriation to the Federal Deposit Insurance Corp. or through some fee on financial institutions covered by the legislation. Treasury made clear it has no plan to tap the FDIC's Depositors Insurance Fund, the private insurance fund that has dwindled amid a rash of bank failures.
Overall, Treasury pitched the bill as a way to reduce the need for taxpayer funds.
Mr. Geithner called for the broad powers Tuesday during testimony before the House Financial Services Committee. He plans to elaborate on Treasury's proposal in another hearing Thursday, where he also will lay out a more general framework for dealing with systemic risks to the financial system.
"Our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage," Mr. Geithner said in a speech Wednesday before the Council on Foreign Relations in New York. Mr. Geithner also said that Treasury, "in coming weeks," plans to take additional steps to protect consumers and investors from financial fraud and abuse.
According to a document Treasury provided Wednesday morning, the draft bill for resolution authority "would fill a significant void" in the current financial services regulatory structure.
"A draft bill will be sent to Congress this week," Treasury said in the notice.
Treasury said it is in dire need of new tools to address large, complex financial firms that fall outside of the FDIC's regulatory purview. The FDIC already can wind down faltering banks by placing them into so-called receivership, which is a form of bankruptcy.
But because of regulatory gaps, distressed systemically important firms have only two options, according to Treasury: They can obtain outside capital for funding from the government, as in the case of AIG, or they can file for bankruptcy, as in the case of Lehman Brothers.
"Those options do not provide the government with the necessary tools to manage the resolution of the firm efficiently and effectively in a manner that limits the systemic risk with the least cost to the taxpayer," Treasury said.
The legislation would grant the government resolution authority to allow the government to put nonbanks in conservatorship or receivership and wind down the firm in an orderly fashion. Treasury said the legislative proposal should also enable the government to reduce the need for taxpayer funds.
It also would authorize the government to intervene "in appropriately limited circumstances" to avert systemic risks posed by significant firms.
The bill, Treasury said, would cover financial firms that have the potential to severely disrupt the U.S. financial system. That would include bank holding companies and thrift holding companies as well as companies that control broker-dealers, insurance firms and futures commission merchants.
Under the bill, the Treasury secretary would have to make "triggering determination" before invoking resolution authority. The secretary would have to find that the firm is in danger of becoming insolvent, that its insolvency would have serious adverse effects on the economy and financial stability, and that taking emergency action would avoid those adverse effects.
"The decision whether to provide financial assistance to the institution or to put it into conservatorship/receivership will be made by the Secretary and the FDIC, and will be informed by the recommendations of the Federal Reserve Board and the appropriate federal regulatory agency" if different from the FDIC, Treasury said.
Additionally, the bill would permit the government to use a number of different forms of financial assistance to stabilize the firm in question. Treasury added that the legislation would create a funding mechanism to fund the new resolution authority, possibly in the form of a mandatory appropriation to the FDIC or thorough a scheme of assessments on financial institutions. The government could also receive repayment from the redemption of loans made to the financial firm and from sales of any equity interest taken by the government in the firm, the department said.
"We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just," Mr. Geithner said in his speech.
Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com
http://online.wsj.com/article/SB123799575291939189.html#articleTabs%3Darticle
Treasury Outlines Details of Bill for New Powers Article
By MAYA JACKSON RANDALL
Getty Images
Treasury Secretary Timothy Geithner at the Council on Foreign Relations in New York.
WASHINGTON -- The Treasury Department Wednesday revealed key details of a draft bill it plans to send to Congress this week to give the Treasury unprecedented emergency powers to wind down faltering nonbank firms such as American International Group Inc. (AIG).
Under Treasury's legislation, the new "resolution authority" could be funded through a mandatory appropriation to the Federal Deposit Insurance Corp. or through some fee on financial institutions covered by the legislation. Treasury made clear it has no plan to tap the FDIC's Depositors Insurance Fund, the private insurance fund that has dwindled amid a rash of bank failures.
Overall, Treasury pitched the bill as a way to reduce the need for taxpayer funds.
Mr. Geithner called for the broad powers Tuesday during testimony before the House Financial Services Committee. He plans to elaborate on Treasury's proposal in another hearing Thursday, where he also will lay out a more general framework for dealing with systemic risks to the financial system.
"Our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage," Mr. Geithner said in a speech Wednesday before the Council on Foreign Relations in New York. Mr. Geithner also said that Treasury, "in coming weeks," plans to take additional steps to protect consumers and investors from financial fraud and abuse.
According to a document Treasury provided Wednesday morning, the draft bill for resolution authority "would fill a significant void" in the current financial services regulatory structure.
"A draft bill will be sent to Congress this week," Treasury said in the notice.
Treasury said it is in dire need of new tools to address large, complex financial firms that fall outside of the FDIC's regulatory purview. The FDIC already can wind down faltering banks by placing them into so-called receivership, which is a form of bankruptcy.
But because of regulatory gaps, distressed systemically important firms have only two options, according to Treasury: They can obtain outside capital for funding from the government, as in the case of AIG, or they can file for bankruptcy, as in the case of Lehman Brothers.
"Those options do not provide the government with the necessary tools to manage the resolution of the firm efficiently and effectively in a manner that limits the systemic risk with the least cost to the taxpayer," Treasury said.
The legislation would grant the government resolution authority to allow the government to put nonbanks in conservatorship or receivership and wind down the firm in an orderly fashion. Treasury said the legislative proposal should also enable the government to reduce the need for taxpayer funds.
It also would authorize the government to intervene "in appropriately limited circumstances" to avert systemic risks posed by significant firms.
The bill, Treasury said, would cover financial firms that have the potential to severely disrupt the U.S. financial system. That would include bank holding companies and thrift holding companies as well as companies that control broker-dealers, insurance firms and futures commission merchants.
Under the bill, the Treasury secretary would have to make "triggering determination" before invoking resolution authority. The secretary would have to find that the firm is in danger of becoming insolvent, that its insolvency would have serious adverse effects on the economy and financial stability, and that taking emergency action would avoid those adverse effects.
"The decision whether to provide financial assistance to the institution or to put it into conservatorship/receivership will be made by the Secretary and the FDIC, and will be informed by the recommendations of the Federal Reserve Board and the appropriate federal regulatory agency" if different from the FDIC, Treasury said.
Additionally, the bill would permit the government to use a number of different forms of financial assistance to stabilize the firm in question. Treasury added that the legislation would create a funding mechanism to fund the new resolution authority, possibly in the form of a mandatory appropriation to the FDIC or thorough a scheme of assessments on financial institutions. The government could also receive repayment from the redemption of loans made to the financial firm and from sales of any equity interest taken by the government in the firm, the department said.
"We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just," Mr. Geithner said in his speech.
Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com
http://online.wsj.com/article/SB123799575291939189.html#articleTabs%3Darticle