Multi-billion dollar bailouts of failed companies such as AIG, the insurer, could be avoided if the Government is awarded new powers to wind them down, the US Treasury Secretary said today.

Timothy Geithner told a major hearing into the financial crisis that he needed sweeping new powers to seize companies like AIG, whose collapse could devastate the economy, and ensure that a repeat of the $180 billion dollar bailout could be avoided.

"The US Government does not have the legal means today to manage the orderly restructuring of a large, complex, non-bank financial institution that poses a threat to the stability of our financial system," he said.

Without those powers, he said, the Government had no option but to hand over emergency funding to AIG because "a disorderly failure risked deepening and prolonging the current recession."

Mr Geithner's call was backed by Ben Bernanke, chairman of the Federal Reserve, who, unusually, testified at the same hearing of the House of Representatives Committe on Financial Services.

Mr Bernanke said: "AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms."

The new rules could cover insurance companies, hedge funds and investment firms.

AIG, one of the most high-profile casualties of the global financial meltdown, has secured a staggering $180 billion from the Government to help it cope with its problems.

Despite its failure, the stricken group, which amassed a record quarterly loss of $61.7 billion in the fourth-quarter, awarded executives some $165 million in bonuses.

The public disgust at the revelation - which mirrors the row in Britain over the large pension pot awarded to Sir Fred Goodwin of RBS, prompted President Barack Obama to step in and express his anger. In remarks at the White House earlier this month, he said: "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?"

Mr Geithner told today's hearing that, in future, the Government should be able to act as a receiver with powers like the right to sell or transfer assets of troubled non-bank institutions and renegotiate contracts with employees.

The proposal were immediately condemned though by John Boehner, the House minority leader as an "unprecedented grab of power."

He said: "Before that occurs there ought to be a real debate about whether we should give that authority to the Treasury Secretary."

However, he stopped short of saying he opposed the plan.

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