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WASHINGTON: The Federal Reserve announced on Wednesday that it had authorised a new 37.8-billion-dollar cash infusion into troubled insurance giant AIG, which was nationalised last month.
The Fed said that an 85-billion-dollar loan facility made available to AIG last month had been drawn down and that the new cash would be transferred from the New York Fed, which would take securities from AIG and inject cash in return.
"The New York Fed will borrow up to 37.8 billion dollars in investment-grade, fixed-income securities from AIG in return for cash collateral," a statement from the Federal Reserve said.
Far more than other insurers, AIG has been a big player in a complex market called credit default swaps (CDS), financial instruments in which Wall Street companies take out a form of insurance against the risks of bond defaults.
These products, often linked to the US real estate market, are at the heart of the current banking crisis and have exposed AIG to massive losses.
The Fed explained that AIG needed the cash to settle payments to counterparties.
AIG chairman and chief executive Edward Liddy had warned on October 3 that the group might need more money from the Fed.
"We don't know exactly where the borrowing from the Federal Reserve will top out at, and the reason we don't know is we don't know what market conditions will be like," he said.
The US Federal Reserve agreed in mid-September to the loan of 85 billion dollars to stave off the collapse of AIG.
The deal gave the US government a 79.9-percent stake in the insurance behemoth, which it considered too big too fail. - AFP/de
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