The regulatory authority—similar to the FDIC’s so-called bridge bank powers—was originally expected to be included in a broader reform package addressing systemic risk. But now it's being crafted as stand-alone legislation in the wake of the public uproar over the AIG executive bonuses.

The legislation, being spearheaded by House Financial Services Chairman Barney Frank (D-Mass.) could be ready for mark-up before Congress’ spring recess, which starts April 6, according to a senior Congressional staffer. A public hearing is also expected.

“The President has asked us to fast-track,” said the source. “Drafting is going on at both ends of Pennsylvania Avenue.”

The President Wednesday referred to the pressing need for such authority “get a proper mechanism in place,” adding he had discussed the issue with Rep Frank. It is unclear who is handling it on the Senate side, but it would presumably come under the portfolio of the Finance Committee, chaired by Chris Dodd (D-Conn.)

“What we are working on is a resolution authority that would be similar—not identical, but similar to the powers that the FDIC currently has over banks,” the President said in his comments about the AIG uproar,

FDIC Chairman Sheila Bair Thursday told Congress that the government’s policy of bailing out firms because they were too big to fail had to be replaced.

Under current law, the FDIC has so-called “bridge bank authority” to take over a troubled institution with government insured deposits. The FDIC essentially keeps the bank open for a short period of time before a pre-arranged buyer—meaning another bank—assumes control and operation. In some cases, the government actually closes the bank and pays off depositors.

The FDIC, however, does not control bank holding companies, the parent companies of the commercial banks. That is the responsibility of the Fed, but the central bank is only legally allowed to make the company take so-called prompt corrective action to deal with such things as capital requirements.