Fed pumps $56b into AIG

October 9, 2008

The US Federal Reserve will provide as much as $US37.8 billion ($56 billion) in additional liquidity to American International Group Inc.'s regulated insurance units after rescuing the company with an $US85 billion loan last month.

The Fed board used emergency powers to authorize the New York Fed to borrow up to $US37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral, the Fed said in a statement. The action will help AIG ``replenish liquidity'' and provide ``enhanced credit protection to the New York Fed and US taxpayers,'' the Fed said.

Chief Executive Officer Edward Liddy, appointed by the US to run the firm, has been trying to sell units to repay the original loan, which he had said was big enough. AIG, running short on cash after three quarterly losses of more than $US18 billion, agreed Sept. 16 to a government takeover in which the US received a 79.9% stake.

The collapse of the New York-based insurer was the subject of Congressional hearings yesterday, which triggered criticism of the company for spending $US440,000 on a California conference at a beachside resort less than a week after AIG was rescued.

Bloomberg News