WASHINGTON -- The Federal Reserve should lose its authority to bail out big, failing financial firms like AIG and Bear Stearns under proposed reforms aimed at limiting the collateral damage from such failures, U.S. Treasury Secretary Timothy Geithner said on Thursday.
Geithner, in prepared testimony for the U.S. House of Representatives Financial Services Committee, said the Fed should keep its ability to act as an emergency lender of last resort, but only to solvent firms in times of severe stress in financial markets -- with Treasury consent.
"Any firm that puts itself in a position where it cannot survive without special assistance from the government must faces the consequences of failure," Geithner said. "The proposed resolution authority would not authorize the government to provide open-bank assistance to any failing firm."
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