U.S. Treasury Secretary Timothy Geithner said that “we’re pretty close” to finalizing financial reform that ends the too-big-to-fail policy of government bailouts, despite strong Republican opposition to the overhaul bill that will resume Senate consideration next week.
In an interview with CNBC, Geithner sounded confident of an agreement on the reform legislation proposal that gives the Federal Reserve and a new oversight panel the ability to “dismember” institutions that pose a threat to the U.S. economy.
Last week, Sen. Richard C. Shelby, the top Republican on the Senate Banking Committee, sent a letter to Geithner strongly criticizing the financial reform bill by the committee’s chairman, Sen. Christopher Dodd. Shelby said the bill allows the Fed to retain its emergency lending authority, which the Central Bank has utilized to bailout out the largest financial institutions over the past 18 months.
In effect, Shelby contended, the bill leaves “too big to fail” intact.
Geithner, however, did not specifically respond to Shelby’s claims. But he asserted that the oversight reform would no longer require taxpayer bailouts of the largest firms.
“If big banks ever again manage themselves to the edge where they can’t survive without government assistance,(then) the government should have the ability to come in and dismember them, to unwind them, to sell them in pieces without putting the taxpayers’ money at risk,” Geithner told CNBC.
The Treasury Secretary called it a “tragic failure” that the government doesn’t already have in place this kind of system to breakdown an institution with such power over the economy.
He also defended a Shelby criticism that the Fed would identify a group of the largest firms with assets of more than $50 billion, and by doing so, would re-initiate the “too big to fail” mindset.
“We need to identity them to be able to subject them to tougher constraints on risk taking,” Geithner said.