U.S. President Barack Obama (R) receives a daily economic briefing beside U.S. Treasury Secretary Timothy Geithner in the Roosevelt Room of the White House in Washington, March 23, 2009.(Xinhua/Reuters Photo)

The Obama administration called on Congress on Tuesday to grant it broad power to seize non-bank financial companies whose collapse could jeopardize the economy.

"The United States government does not have the legal means today to manage the orderly restructuring of a large, complex non-bank financial institution that poses a threat to the stability of our financial system," Treasury Secretary Timothy Geithner said in testimony before the House Financial Services Committee.

"AIG highlights broad failures of our financial system," said the Treasury chief. "We must ensure that our country never faces this situation again."

The U.S. government currently has the authority to seize only banks. A change in the Treasury Department's power would need to be approved by Congress.

"All institutions and markets that could pose systemic risk will be subject to strong oversight, including appropriate constraints on risk-taking," warned Geithner. "Regulators must apply standards, not just to protect the soundness of individual institutions, but to protect the stability of the system as a whole."

Federal Reserve Chairman Ben Bernanke, who also appeared at Tuesday's hearing in the House, agreed with Geithner. "AIG highlights the urgent need for new resolution procedures for systemically important non-bank financial firms," he said.

"If a federal agency had such tools on Sept. 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate," said the U.S. central bank chief.

In a joint statement released on Monday, the Federal Reserve and the Treasury agreed that the central bank should "play a central role," through cooperation with other agencies, in preventing and managing financial crises like the current one.

To reduce the risk of future crises, the Federal Reserve and the Treasury will work with the Congress to develop a regime that will allow the U.S. government to address effectively at an early stage the potential failure of any systemically critical financial institution, according to the statement.

"As part of the framework set forth, the legislation should spell out to the extent possible the expected role of the Federal Reserve and other U.S. government agencies in such resolutions," said the statement.

White House press secretary Robert Gibbs also said in television interviews Tuesday morning that the expanded power would have given the government more options, and potentially more control to tackle the crisis.

"If the Treasury had resolution authority on AIG, you wouldn't have to put it into bankruptcy to change executive compensation, you could do that automatically," he said on CNN.

Editor: Yan