Seeking to avoid another financial crisis similar to the potential failure of AIG last September, leaders of the U.S. Treasury and Federal Reserve urged lawmakers to give them additional authority to supervise the financial system, including the ability to close out struggling non-bank financial institutions.

Testifying about their involvement in AIG’s bailout, U.S. Treasury Timothy Geithner and Federal Reserve Chairman Ben Bernanke on Tuesday urged proposed the measures before a committee on Financial services in Washington.

“We must create a new resolution authority so that the federal government has the tools it needs to unwind an institution the size and complexity of AIG,” Treasury Secretary Timothy Geithner said in prepared statements ahead of a hearing about the AIG bailout in Washington today.

“The lack of an appropriate regulatory regime and resolution authority for large non-bank financial institutions contributed to this crisis and will continue to constrain our capacity to address future crises,” he added.

Federal Reserve chairman Ben Bernanke echoed the thought, stating that current rules weren’t enough.

At that time [of the initial $85 billion emergency government loan to AIG], no federal entity could provide capital to stabilize AIG and no federal or state entity outside of a bankruptcy court could wind down AIG, Bernanke said.

“AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms. 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 on creditors and counterparties as appropriate.

Timothy geithner Aig Ben Bernanke