Tim Geithner has been asked to testify in Congress about the Federal Reserve Bank of New York's effort to limit American International Group Inc.'s disclosures, while it was being bailed out by the Fed, of huge payments to banks.

President Obama defended his Treasury secretary in advance of a hearing by the House Oversight and Government Reform Committee. It will probably occur the week of Jan. 18, according to a press release Friday from Chairman Edolphus Towns, D-N.Y. E-mails obtained by Congress include requests from the New York Fed in 2008, when Geithner was its president, that the insurer withhold documents from public filings about payments to banks to retire credit-default swaps.

"A comprehensive review of the rise and fall of AIG, and the involvement of counterparties, can provide a useful vehicle to understanding how inadequate regulations, cheap money, risky business deals and, in some instances, corruption led to the current economic crisis," Towns said.

The decision to call the hearing, which was advocated by the committee's ranking Republican, Rep. Darrell Issa of California, and Rep. Elijah Cummings, D-N.Y., adds pressure on Geithner to explain his handling of AIG's bailout. The rescue fully reimbursed banks including Goldman Sachs Group Inc. and Societe Generale SA for swap guarantees sold by the insurer. Issa has called the rescue of New York-based AIG a "backdoor bailout" of the banking companies.

Obama, "of course," has full confidence in Geithner, Robert Gibbs, a White House spokesman, said on Friday.

"Secretary Geithner was not involved in any of these e-mails," Gibbs said. "These decisions did not rise to his level at the Fed."

Meg Reilly, a Treasury spokeswoman, said in an e-mail late Thursday that "Geithner played no role" in decisions regarding the New York Fed's requests to withhold data. "He was recused from working on issues involving specific companies, including AIG," after he was nominated Nov. 24, 2008, by Obama.

Geithner, who helped orchestrate a first AIG bailout in September 2008 while he was president of the New York Fed, made the decision to pay banks 100 cents on the dollar for their AIG swaps, according to a November 2009 audit by Neil Barofsky, the special inspector of the Troubled Asset Relief Program.

Issa, who requested the e-mails from AIG in October, said on Friday that the oversight committee should subpoena Geithner if he declines to testify.

Cummings was among the first lawmakers to question AIG's plan to pay $1 billion in retention bonuses. A backlash about awards paid to employees in the financial products division responsible for the swaps peaked in March with Obama criticizing the bonuses.

Before the New York Fed took over negotiations late in 2008, AIG had tried to persuade its bank counterparties to accept so-called haircuts of as much as 40 cents on the dollar, according to people familiar with the matter. The New York Fed's decision to pay the banks in full may have cost taxpayers $13 billion, or 40% of the $32.5 billion paid to retire the swaps.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.