The Treasury Department said on Wednesday it will send proposals to Congress this week that would let it seize troubled non-bank financial firms, one day after Treasury Secretary Timothy Geithner called for expanded powers in order to avoid possible future bailouts.

Geithner on Tuesday testified before lawmakers angry at big bonuses paid to executives of American International Group after the insurer got billions in government bailout funds. Treasury on Wednesday said the government could have acted differently if it already had the powers it now seeks when AIG got in trouble.

It could have resolved AIG in an orderly manner that shared losses among equity and debt holders in a way that maintained confidence in the institution's ability to fulfill its obligations to insurance policyholders and other systemically important customers, Treasury said in a statement.

The proposals, which Treasury says would grant it powers over non-bank financial firms that are similar to the Federal Deposit Insurance Corporation's authority to shut down banks, may face a rocky road on Capitol Hill. Some Republicans signaled they will oppose it because it concentrates too much authority in government hands.

House Republican leader John Boehner told reporters on Tuesday that Treasury's request for authority to shutter non-banks sounded like an unprecedented grab of power.

But a prominent lobby, the Financial Services Roundtable, said it backs the idea as part of a broader regulatory overhaul that the Obama administration promises is coming.

It said the new resolution authority must include consultation with a dedicated federal insurance regulator to advise a conservator or receiver how to deal with a troubled non-bank firm.

The Treasury proposals will apply to financial firms, like insurers or possibly financing arms of some big industrial companies, that might pose risks to the entire financial system and that are not covered by the FDIC.

The Treasury wants the government to have the right to put a troubled non-bank financial firm into receivership or under care of a conservator, which could then either orchestrate an orderly reorganization or shut the firm down.

In its statement, Treasury suggested the expanded powers would reduce the need to put taxpayers' money at risk supporting financial firms because a conservator or receiver could sell off assets and raise money that way.

If a firm were in receivership, the receiver would also have the power to repudiate the firm's contracts, including those with employees.

Treasury said the proposals will be modeled after the system that permits the FDIC to take over troubled banks and either shut them down or hold them until they can be reorganized or sold to another banking organization.

It said the expanded authority could be funded by appropriating funds for it to the FDIC or through some form of assessment or fees that would be charged to firms that are covered by it, implying that the FDIC may be Treasury's favored agency for administering it.

(Reporting by Glenn Somerville; Editing by Leslie Adler)

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