Geithner: Reducing size of AIG difficult

Testifying before the Senate Banking committee, Geithner said untangling AIG's finances has proven to be more difficult than originally envisioned.

The federal government holds about 80 percent of AIG's assets and has injected $70 billion into the company from the $700 billion Troubled Asset Relief Program.

Asked whether he envisioned the government pulling out of its role with the company in a year, Geithner replied: "In some parts of the financial community it's going to take a longer period than that, probably with AIG, too."

Senators criticized the government for letting AIG pay its top creditors the full value of their debt. Geithner said the government did not have the authority to negotiate a reduction in the value of those claims.

Banking Committee Chairman Christopher Dodd, D-Conn., replied: "There should be a better answer to this."

Geithner has asked congress to pass legislation creating a resolution authority that would permit the government to step in and clean up large failing financial institutions, much like the Federal Deposit Insurance Corp. does with banks.

Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., said they would be willing to sponsor legislation that would give the government specific authority to do that with AIG.