Document Type
Case Study
JEL Codes
G01, G28
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.
Recommended Citation
Wiggins, Rosalind Z.; Lawson, Aidan; Kelly, Steven; Engbith, Lily S.; and Metrick, Andrew
(2021)
"The Rescue of American International Group Module Z: Overview,"
Journal of Financial Crises: Vol. 3
:
Iss. 1, 208-281.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol3/iss1/8
Date Revised
2021-04-16
Included in
Corporate Finance Commons, Economic History Commons, Economic Policy Commons, Finance Commons, Finance and Financial Management Commons, Macroeconomics Commons, Other Public Affairs, Public Policy and Public Administration Commons, Political Economy Commons, Public Economics Commons