The Rescue of American International Group Module Z: Overview

75 Pages Posted: 12 Aug 2021 Last revised: 27 Aug 2021

See all articles by Rosalind Wiggins

Rosalind Wiggins

Yale Program on Financial Stability

Aidan Lawson

Yale University - Yale Program on Financial Stability

Steven Kelly

Yale School of Management - Program on Financial Stability

Lily Engbith

Yale School of Management - Program on Financial Stability

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: April 15, 2021

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 (Treasury 2013, 14). 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.

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

JEL Classification: G01, G28

Suggested Citation

Wiggins, Rosalind and Lawson, Aidan and Kelly, Steven and Engbith, Lily and Metrick, Andrew, The Rescue of American International Group Module Z: Overview (April 15, 2021). The Journal of Financial Crises: Vol. 3: Iss. 1, 208-281, 2021, Available at SSRN: https://ssrn.com/abstract=3902819 or http://dx.doi.org/10.2139/ssrn.3902819

Rosalind Wiggins (Contact Author)

Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Aidan Lawson

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Steven Kelly

Yale School of Management - Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Lily Engbith

Yale School of Management - Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Andrew Metrick

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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