UPDATE 2-Global view key to US role on failing banks-official

By Emily Chasan NEW YORK, Nov 4 (Reuters) - The proposed U.S. financial resolution authority, which would empower the government to deal with large, failing financial firms, must take care not to alter international competitive balance, a key U.S. Treasury Department official said on Wednesday. There must be "a recognition that we have to level the playing field as much as possible, as much as we can, in the international sphere," George Madison, who has been general counsel at Treasury since September, said in comments to a Practising Law Institute conference in New York. While proposals related to the proposed authority are still "in flux," Madison said, regulators should be "making sure U.S. institutions aren't treated too differently than foreign firms." The resolution authority would deal with the "too big to fail" issue that plagued the Bush administration's efforts in 2008 to address crises at former Wall Street giants Lehman Brothers and Bear Stearns, as well as former mega-insurer American International Group. "We didn't have the tools to do very much with Lehman, or poor AIG, frankly," Madison said at the conference. Under a bill being considered by Congress, U.S. House of Representatives Financial Services Committee Chairman Barney Frank and the Obama administration have proposed that financial companies with more than $10 billion in assets would be assessed under the resolution authority program. As presented last week, the bill called for large financial firms to repay the Treasury Department on a case-by-case basis for Treasury loans used to finance government regulators' interventions to fix troubled financial firms, but Frank has recently said he can no longer support that funding approach. The new strategy is expected to make it easier for the government to oust managers, wipe out shareholders and restructure a firm's outstanding loans, in ways that may be faster moving than the current federal bankruptcy process and broader than the Federal Deposit Insurance Corp's current receivership authority. Other countries are also considering their own "too big to fail issues." The Swiss government has asked experts to come up with solutions that would prevent big banks and insurers from sinking the whole economy if they fail and is expected to present a report by autumn 2010. EU regulators are also considering measures to force banks across Europe to sell assets and sometimes even to break up to compensate for massive state aid they have received. "We do need a resolution authority that works," Stephen Cutler, executive vice president and general counsel at JPMorgan Chase & Co, said at the same conference. "At the end of the day, if we don't have one, I think we are bound to find ourselves in another Lehman situation," he added. But breaking up big banks may not be the answer, he said. "The answer for too big to fail shouldn't be to break up these big institutions," Cutler said, noting that international banking conglomerates play a big role in financing the large international companies that keep the global economy humming. (Reporting by Emily Chasan, additional reporting by Rachelle Younglai; Editing by Dave Zimmerman, Gary Hill) Keywords: TREASURY/RESOLUTION ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.