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.
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