The US Federal Reserve has stepped in again to help troubled insurance company American International Group (AIG), authorising the Federal Reserve Bank of New York to borrow up to $37.8 billion in investment-grade fixed income securities from AIG in return for cash collateral.The Fed’s move comes just weeks after it agreed to lend AIG $85 billion to meet its obligations, in return for a 79.9% equity stake in the firm. The regulator said drawdowns on this loan facility had been used to settle transactions with counterparties returning securities previously lent by AIG."This new programme will 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,” the Fed said. The US government has been desperately trying to avoid the collapse of AIG in recent weeks. Not only is AIG a leading provider of insurance, potentially causing knock-on effects in the wider economy, it is also a major seller of credit default swaps protection through its subsidiary, AIG Financial Products. Dealers say a default would have huge ramifications in the credit derivatives market as hedgers scramble to cover affected positions.
More on Credit Risk
Kenyon and Green model the effects to pricing of credit warehousing, capital and tax
Fund says securitisation practices should be tightened while spurring demand
The next time a big dealer defaults, it will hit a host of swap clearing houses simultaneously
Risk Awards 2015: French bank shared trade finance exposure with World Bank
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.