May 6 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair recommended Congress set up a systemic-risk council to monitor companies that may pose threats to the financial system because of their size and ties to other firms.

The FDIC, the Federal Reserve, the Treasury Department and the Securities and Exchange Commission should be represented on the panel, Bair said today at a Senate Banking Committee hearing in Washington.

“A financial system characterized by a handful of giant institutions with global reach, even with a single systemic-risk regulator, is making a huge bet that they will always make the right decisions at the right time,” Bair said.

U.S. regulators have improvised programs in the past year to prop up companies hit by the worst economic crisis since the Great Depression, handing out more than $90 billion to Citigroup Inc. and Bank of America Corp., providing more than $180 billion in loans to American International Group Inc. and creating debt guarantee programs. Congress plans to overhaul the regulatory system after financial firms worldwide reported more than $1.3 trillion of writedowns and credit losses since 2007.

“There is a need for systemic-risk regulation to ensure that we no longer need to treat any institution as ‘too big to fail,’” Senate Banking Committee Chairman Christopher Dodd said at the hearing. “It is my preference that authority not lie in any one body; we cannot afford to replace Citi-sized financial institutions with Citi-sized regulators.”

‘Systemically Important’

Bair urged lawmakers to set up a resolution authority for “systemically important” institutions and to give the FDIC power to wind down bank and thrift holding companies similar to the role it now plays with failed lenders.

“By giving the FDIC authority to resolve a failed bank’s holding company, Congress would provide the FDIC with a vital tool to deal with the increasingly complicated and highly symbiotic business structures in which banks currently operate,” she said.

The U.S. could face big losses if regulators fail to gain more power over companies deemed vital to financial market stability, Minneapolis Federal Reserve Bank President Gary Stern told the Senate panel today.

“Maintaining the status quo” in regulation of firms considered “too big to fail” may “well impose large costs on the U.S. economy,” said Stern, who urged that such companies be required to set aside additional reserve capital.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: May 6, 2009 10:38 EDT