The Federal Deposit Insurance Corp should be the agency to wind down troubled nonbank financial companies, though perhaps through a legally separate resolution authority, Chairman Sheila Bair said on Wednesday.

Bair responded to bankers' fears that giving the FDIC the power to wind down such companies could threaten the agency's reputation of protecting bank deposits.

We certainly don't want to do anything to dilute our brand, Bair told an American Bankers Association conference. It can be addressed through the way the authority is structured, perhaps through a separate entity that would be under the FDIC board, but legally separate and separately branded.

The FDIC currently has the power to seize depository banks, but does not have similar authority for bank holding companies such as Citigroup Inc or insurers such as American International Group Inc .

The U.S. Treasury Department released a legislative proposal last week that would give the FDIC the power to wind down a troubled nonbank financial firm whose outright failure could do broad damage to the economy.

The ABA has said it opposes giving the FDIC the additional resolution authority because it could muddle the agency's mission to stand behind bank deposits. The industry group also said it was worried that banks would have to shoulder some of the costs associated with winding down other financial firms.

U.S. Comptroller of the Currency John Dugan said on Tuesday that he was also questioning whether the FDIC should be the resolution authority for nonbank financial firms. He said the FDIC's mission is focused on banks, as it should be.

Another voice of opposition came from Rep. Spencer Bachus. The Alabama Republican said during a hearing last week that he was worried about language in the proposed legislation that could give the FDIC access to limitless funds to handle troubled institutions.

Bair said on Wednesday that the FDIC has the experience and manpower to take on the task.

Any costs from resolving nonbanks would be paid through fees the FDIC would charge systemically important firms, she said.

The fees would be on a sliding scale, meaning the firms that take the greatest risk would have to pay the most.

And she said the FDIC is the logical home for this resolution authority because it could quickly be operational.

To create another agency that has to be staffed up and ready to be resolution entity for nonbank institutions, I'm not sure that makes much sense, Bair said.

(Reporting by Karey Wutkowski; Editing by Lisa Von Ahn)

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