Financial Reform Closer to Ending 'Too Big to Fail': Geithner


The financial reform bill is moving closer to guaranteeing its two most important functions: that taxpayers will never again have to spend billions of dollars to rescue failing banks, and that institutions will never be considered too big to fail, Treasury Secretary Timothy Geithner told CNBC Monday.

Timothy Geithner

"[Sen. Chris Dodd's bill] makes the key point—which is that if big banks ever again manage themselves to the edge where they can't survive without government assistance, the government should have the ability to come in and dismember them," Geithner said.

"We don't want taxpayers ever again to be exposed to bearing any of the costs of these kind of large financial crisis."

Geithner said it's important to identify the largest financial institutions and to ensure they're subject to higher capital requirements and other constraints on risk taking. The government also needs to come up with a way to dismember one bank without harming the entire system.

"Our financial system today is in a much, much stronger position than it was a year ago, two years ago, three years ago, [and] before the crisis, in part because we've had a huge, wrenching restructuring of the system," he said.

Geithner said the US Treasury's announcement that it will sell its 7.7 billion common shares in Citigroup, and the rapid progress of AIG , shows how far the financial system has come since the collapse of Lehman Brothers.

What's more, he thinks the US has recovered more quickly than other countries, by moving quickly and recapitalizing the financial system with private money.

"This is just the next stage of us moving to make sure we're getting out of the financial system as quickly as we can, because we don't want to be in the business of owning a share in a private company a day longer than necessary," he said of the Citi announcement.

Still, Geithner said the government needs to work on rewriting the entire housing financial system, and not focusing on just the collapse of mortgage giants Fannie Mae and Freddie Mac .

He admitted that small- to mid-sized banks will continue to struggle this year due to their exposure to commercial real estate, but said that with the appropriate legislation, "we can manage through this process," he said.