US ups ante on regulation as G20 looms

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WASHINGTON, Mar 25 (AFP): Top US economic policymakers called yesterday for new regulation of giant financial firms like AIG to avoid a repeat of the worst economic slump in decades, as leaders geared up for a Group of 20 crisis summit.
US Treasury Secretary Timothy Geithner said that President Barack Obama's administration and Congress should work together to enact "comprehensive regulatory reform and eliminate gaps in supervision" which would include the seizing of firms outside the banking system.
"All institutions and markets that could pose systemic risk will be subject to strong oversight, including appropriate constraints on risk taking," Geithner told a congressional committee.
Federal Reserve chairman Ben Bernanke stressed the "urgent need for new resolution procedures for systemically important nonbank financial firms."
"AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms," Bernanke told the House of Representatives financial services committee.
"If a federal agency had had such tools on September 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts (reductions) on creditors and counterparties as appropriate," he said.
"That outcome would have been far preferable to the situation we find ourselves in now," he said.
European leaders, especially in France and Germany, blame lax regulation for the financial crisis that has brought the global economy to its knees, and want the G20 meeting in London to take on major reforms to tackle abuses.
Washington has been pressing governments to spend whatever it takes to get their economies moving again but on Tuesday, Obama emphasized regulatory reform as essential too.
Calling for G20 leaders to agree a strategy to kick-start the global economy, Obama said "we are living through a time of global economic challenges that cannot be met by half-measures or the isolated efforts of any nation."
G20 leaders "have a responsibility to take bold, comprehensive and coordinated action that not only jump-starts recovery but also launches a new era of economic engagement to prevent a crisis like this from ever happening again," the US president wrote in the International Herald Tribune.