- The Washington Times - Wednesday, March 18, 2009

WASHINGTON (AP) - President Barack Obama seeks new powers that would allow his administration to seize troubled companies like the insurer AIG _ and take ownership of their toxic assets _ if their collapse would threaten the financial system.

Obama said Wednesday his administration will soon propose new financial industry oversight that includes a “resolution authority” that would have powers similar to those of the Federal Deposit Insurance Corp., which can seize control of banks, take over their bad assets and sell the good ones to competitors.

Administration officials did not provide any details on how the new resolution authority would be financed. That could be a key sticking point in Congress.

One official at a banking industry trade group in Washington said the Obama proposal raises concerns about the possible “nationalization” of banks.

Further details of the Obama administration’s regulatory overhaul package are expected to be unveiled as early as next week, in advance of an April 2 meeting in London the president will attend to discuss the financial crisis with other world leaders.

Obama touted the idea Wednesday as his top officials and members of Congress scrambled to deal with public outrage over millions in employee bonus payments made by American International Group, which has gotten more than $182.5 billion in government support.

“This is part of the broader package of financial regulatory steps that we’re going to be taking that ensures that, going forward in the future, we’re not going to find ourselves in these kinds of terrible positions again,” Obama told reporters before departing on a trip to California.

One administration official, speaking on condition of anonymity because a detailed plan has not yet been released, said that the proposal would give the treasury secretary the power, after consulting with officials at the Federal Reserve, to take control of a major financial institution and run the company in a type of conservatorship.

That is what occurred when the government seized control of mortgage giants Fannie Mae and Freddie Mac last September. The government had the authority to take control of Fannie and Freddie and oust their top executives because those companies were government-sponsored enterprises.

However, the government did not have such powers when it came to AIG, forcing the government to pump tens of billions into the company, which then funneled money to its trading partners, such as Goldman Sachs and Deutsche Bank.

Obama said it was “outrageous” that the government was being forced to “clean up after AIG’s mess.” He said it was critical that the government have the “tools to prevent ourselves from getting in a situation where an AIG can pose such enormous vulnerabilities to the system as a whole.”

Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, which represents the country’s biggest banks, said his group is skeptical of Obama’s proposal.

“This could be a large step toward nationalization,” he said.

The president, who on Wednesday discussed the “resolution authority” idea with House Banking Committee Chairman Barney Frank, said he believed the measure was on a “fast track.”

Frank was also scheduled to discuss the issue with Treasury Secretary Timothy Geithner, who has been attacked by Republicans for his handling of the AIG bonus issue. On Wednesday, Geithner received an endorsement from Obama, who told reporters he “is making all the right moves in terms of playing a bad hand.”

European countries have pushed the administration to take a tougher approach to financial regulation, believing it was a weak regulatory structure in the United States that led to the crisis that has now pushed the global economy into recession.

The new powers the president seeks would apply to large non-bank financial institutions, such as insurance companies, as well as big bank-holding companies, the administration official said.

These kinds of companies have already received billions of dollars of support from the government’s $700 billion financial system rescue fund that Congress created last October.

Other changes to financial regulation the Obama admistration is expected to seek, include:

_ expanding the powers of the Federal Reserve, giving it authority to oversee financial firms that could pose risks to the entire banking system.

_ expanding the capital reserve requirements for banks.

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