By MARCY GORDON
The Associated Press
WASHINGTON - The head of the Federal Deposit Insurance Corp. says new powers are needed to oversee companies that pose financial risks to the economy, an authority that could be shared by the FDIC and other regulators.
Policymakers want to replace the "too big to fail" model used by the government as it rushed in to rescue huge financial institutions caught up in the global crisis last fall.
"Our current system has clearly failed in many instances to manage risk properly and to provide stability," FDIC Chairwoman Sheila Bair told the Senate Banking Committee Wednesday. "We're talking about a resolution and not a bailout."
Scores of bank holding companies, such as Citigroup Inc. and Bank of America Corp., fall under the supervision of the Federal Reserve. The FDIC now can take over and resolve only the subsidiaries of bank holding companies that take federally insured deposits.
Thrift holding companies, such as Lincoln National Corp. and Phoenix Companies Inc., are supervised by the federal Office of Thrift Supervision, part of the Treasury Department.
Bair called for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system.
She suggested the Treasury Department, FDIC, Federal Reserve and Securities and Exchange Commission could be members of a new "systemic risk council" set up to monitor large institutions against the kind of risk that plunged the markets worldwide into distress last year. A "council" of regulators would be better equipped than a single agency to exercise that oversight, writing rules, setting capital requirements and collecting data on large institutions that pose a potential threat to the system, Bair said.
The Obama administration has presented to Congress an extensive overhaul of financial regulation meant to prevent a repeat of the banking crisis. A pillar of the plan is creating a so-called systemic regulator to monitor against the risks.
The administration also proposes giving the Treasury secretary the power, after consulting with officials at the Fed, to take control of a major financial institution and run it. The Treasury chief is a Cabinet member and official of the administration, unlike the FDIC, which is an independent regulatory agency.