Two prominent U.S. lawmakers on Friday called for U.S. Treasury Secretary Timothy Geithner to testify to help determine if the New York Federal Reserve Bank improperly influenced insurer AIG to withhold information on its payments to banks after a government bailout.
Representative Spencer Bachus, the top Republican on the House Financial Services Committee, and Elijah Cummings, a Democrat on the House Oversight and Government Reform Committee, requested their respective panels hold hearings on the matter.
The requests came after email traffic between lawyers for New York Fed and AIG released on Thursday showed the Fed sought to alter the disclosures in late 2008, when Geithner was still in charge of the bank.
Among information New York Fed lawyers sought to delete from proposed Securities and Exchange Commission filings was details of payments to banks with taxpayer funds in which institutions would get 100 percent of par value for credit default swaps being liquidated, according to the emails.
The use of government bailout funds by banks to pay each other off in full rather than suffer losses from the financial crisis has caused public outrage.
"It is critical that we understand if the FRBNY did request the withholding of information and what the extent and nature of the pressure exerted by the FRBNY on AIG may have been," Cummings wrote in a letter to House Oversight and Government Reform Committee Chairman Edolphus Towns.
"If evidence indicates that the FRBNY did indeed ask that AIG withhold information from its SEC filings, I believe the Committee should examine the specific nature of the information that the FRBNY allegedly asked AIG to withhold as well as the relevant statutory and regulatory disclosure requirements that applied to AIG at that time," wrote Cummings, of Maryland.
New York Fed lawyers have said that they made all legally required disclosures on the payments in the Dec. 24, 2008 SEC filing and did not intend to mislead the public.
The Treasury said on Thursday that Geithner was "officially recused" from any New York Fed dealings after he was nominated for Treasury Secretary on Nov. 24, 2008 — about the time the email traffic started.
Bachus, the Alabama Republican, was more pointed in his criticism of the AIG bailout and said the New York Fed stepped in to prevent public disclosure of key information.
"This calculated attempt to withhold important information from the public and market participants runs counter to the principles of our capital markets," Bachus said in a statement.
Spokespersons for Towns and Financial Services Committee Chairman Barney Frank could not immediately be reached for comment on the requests.
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