"administration will urge Congress to grant it the authority to take over major troubled instutions"

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Geithner urges overhaul of financial regulations

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON – Treasury Secretary Timothy Geithner said Monday that the severe banking crisis shows the U.S. financial system failed a major test and is in need of an overhaul.

Geithner told a Washington conference that the Obama administration plans to work with Congress to put in place a stronger, more stable system with a modernized government regulatory structure.

"Our system basically failed its most fundamental test," he said in remarks to a conference sponsored by the Wall Street Journal. "It was too fragile."

Geithner will appear with Federal Reserve Chairman Ben Bernanke on Tuesday before the House Financial Services Committee which is examining the government's handling of the bailout of troubled insurance company American International Group Inc.

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The official, who spoke on condition of anonymity in advance of Geithner's testimony, said he would "focus on the need for the government to address companies and markets that pose systemic risks to our financial system, ensuring that we close the gaps in the regulatory framework and that we never have to face situations like AIG again."

The administration will urge Congress to grant it the authority to take over major troubled instutions whose collapse is judged to pose a threat to the entire financial systmem.

The administration would have the power to limit payments to creditors and to break contracts for executive bonuses, the issue that raised the furor with AIG.

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