The US Federal Reserve last night approved a new $37.8 billion cash injection into troubled insurance giant AIG, which was nationalised last month.
The Fed said that an $85 billion loan facility made available to AIG last month had been used up and that the new cash would be transferred from the New York Fed, which would take securities from AIG and inject cash in return.
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 property 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.
The US Federal Reserve agreed in mid-September to the loan of $85 billion to stave off the collapse of AIG. The deal gave the US government a 79.9% stake in the insurance giant, which it considered too big to fail.
