WASHINGTON — Giving the government new powers to seize big troubled companies became the new focus of debate in Congress on Thursday as lawmakers and the administration begin efforts to overhaul the nation’s financial rule book.
The head of the Federal Deposit Insurance Corp. said the government’s strategy in the financial crisis of bailing out huge institutions deemed “too big to fail” must be replaced.
FDIC chairwoman Sheila 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. A mechanism is needed to resolve troubled financial institutions similar to what the FDIC does with federally insured banks and thrifts, she said.
Testifying at a Senate Banking Committee hearing, Bair said simply creating a so-called systemic risk regulator — a central idea in the discussion of overhauling the U.S. financial rules — “is not a panacea.”
The committee’s chairman, Sen. Christopher Dodd, D-Conn., said possibly the most important lesson is that “no institution should ever be ‘too big to fail.’ ” Dodd suggested it could make sense to give the FDIC authority to take over big institutions whose collapse would threaten the financial system.
