The Federal Reserve Board said last week that it has authorized a transaction to provide American International Group with an additional $37.8 billion on top of the $85 billion line of credit already extended.
Explaining the arrangement, the Fed said the Federal Reserve Bank of New York has been authorized to borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral.
The securities involved were previously lent by AIG's U.S. life insurance company subsidiaries to third parties, such as banks and investors.
A spokesperson for AIG, Nick Ashooh, said the transaction was different from the $85 billion loan, which at last report AIG had tapped for $61 billion.
He explained that the new credit arrangement provides overnight short-term liquidity to help the company return collateral that investors and other parties had supplied to obtain AIG securities loans.
Under normal conditions, before the current credit crisis, Mr. Ashooh said the company would have been able to re-lend those securities to other private parties.
The Fed said, "As expected, drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG."
This new loan program, the Fed said, "will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities."
Making a similar statement, AIG said the securities' borrowings by the New York Fed would allow the insurer "to replenish liquidity to the securities lending program on an as-needed basis, while providing possession and control of these third-party securities to the New York Fed."
The company reported that as of Monday approximately $37.2 billion of securities were subject to loans under AIG's securities lending program.
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