Fed props up AIG with $85 billion loan

The Federal Reserve has loaned $85 billion to bolster AIG liquidity

WASHINGTON, DC – The US Federal Reserve has made an $85 billion overnight liquidity loan to struggling US insurer American International Group (AIG). Industry commentators had speculated AIG could be the next big financial institution to run into trouble in the aftermath of the collapse of investment bank Lehman Brothers and the sale of its rival Merrill Lynch on Monday.

A statement from the Board of Federal Governors justified the move by saying it believed a disorderly failure of AIG could add to “already significant levels of financial market fragility”. The $85 billion will be repaid from AIG assets over 24 months, while the Fed will assure the loan protects taxpayers’ interests.

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