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Fed handling of AIG counterparties faulted
17 November 2009
The Federal Reserve Bank of New York’s (FRBNY) negotiations with American International Group (AIG)’s counterparties on the issue of payment for insured complex securities have been found lacking, according to a government audit.
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The Federal Reserve Bank of New York’s (FRBNY) negotiations with American International Group (AIG)’s counterparties on the issue of payment for insured complex securities have been found lacking, according to a government audit.
While this decision saved some of the world's biggest banks from potentially large losses, the report has found flaws with the original terms of federal assistance made to AIG, the negotiating strategy to pursue concessions from counterparties and the structure and effect of Maiden Lane III and loans made to AIG.
The report, issued by the Office of the Special Inspector General for the Troubled Asset Relief Program, also raises issues of transparency and the impact that rating agencies had on the AIG bailout.
Last year, the FRBNY believed that allowing AIG to file for bankruptcy would have posed a considerable risk to the entire financial system and intensified the economic crisis and so provided...
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