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The Rescue of American International Group Module Z: Overview

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Abstract

In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company's ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. To stabilize the company, the government committed additional assistance, including equity investments under the Troubled Assets Relief Program and asset purchases, for a total commitment of $182.3 billion. AIG survived as a smaller entity and repaid all amounts owed to the government, which, along with the government's sale of its AIG equity stake, resulted in a profit of $22.7 billion for the government and taxpayers. In this case we discuss the government's actions on an aggregate basis and analyze how the rescue was conceived and executed in order to better understand the unique lessons to be learned and possibly applied to future crisis events.

Suggested Citation

  • Metrick, Andrew, 2021. "The Rescue of American International Group Module Z: Overview," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 3(1), pages 208-281, April.
    • Handle: RePEc:ysm:ypfsfc:3188
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    References listed on IDEAS

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    1. Parinitha Sastry, 2018. "The political origins of Section 13(3) of the Federal Reserve Act," Economic Policy Review, Federal Reserve Bank of New York, issue 24-1, pages 1-33.
    2. Ball,Laurence M., 2018. "The Fed and Lehman Brothers," Cambridge Books, Cambridge University Press, number 9781108420969, January.
    3. Congressional Budget Office, 2019. "Report on the Troubled Asset Relief Program—April 2019," Reports 55124, Congressional Budget Office.
    4. Thomas C. Baxter & Sarah J. Dahlgren, 2010. "The Federal Reserve Bank of New York's involvement with AIG," Speech 24, Federal Reserve Bank of New York.
    5. Metrick, Andrew, 2019. "The Lehman Brothers Bankruptcy F: Introduction to the ISDA Master Agreement," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 1(1), pages 137-150, March.
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    Cited by:

    1. Nye, Alexander, 2022. "The Rescue of the US Auto Industry, Module A: Automotive Bridge Loans," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(1), pages 49-92, April.

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    More about this item

    Keywords

    AIG; American International Group; FRA Section 13(3); nonbank; liquidity; capital injections; too-big-to-fail; Maiden Lane II; Maiden Lane III; nationalize; TARP;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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