FDIC prods Congress on wind-down power

By John Poirier

WASHINGTON (Reuters) - The head of the U.S. agency that seizes failed banks urged lawmakers on Friday to approve quickly a mechanism to wind down big, nonbank institutions to minimize any future taxpayer exposure to those troubled firms.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said the lack of a mechanism will drive bank regulators' policy decisions until Congress acts to close the gap.

"The lack of this mechanism is driving policy choices right now," Bair said at the Reuters Global Financial Regulation Summit in Washington.

"We think Congress should give a very high priority to providing a resolution mechanism for very large organizations," she added. U.S. regulators lack the tools to dismantle a large institution deemed "too big to fail" and systemically important to the U.S. financial system and the broader economy.

The failure of a company like insurer American International Group Inc (AIG.N) would be devastating to the United States and possibly to other countries, according to experts. AIG has received more than $150 billion in taxpayer support since last September.

"By Congress creating a mechanism to resolve these institutions, we think that would send a strong signal to investors and creditors that they need to do their due diligence in analyzing bank management, boards, balance sheet risk, risk management," Bair said.

The lack of a wind-down mechanism has fed the "too big to fail" presumption and weakened market discipline, she said.

"Just having that threat, that lever, can force action," she said. "The ability to use it would be very helpful."