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Fed authorizes New York Bank to borrow securities from AIG’s subsidiaries

The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated US insurance subsidiaries of the American International Group.

Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from the American International Group (AIG) in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.

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 program will reportedly allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and US taxpayers in the form of a security interest in these securities.