AIG rescued by Fed

18 September 2008

AIG has agreed a $85 billion loan from the US government, saving it from collapse.

The majority of the firm is now in public hands, after the Federal Reserve concluded that the potential systemic risk from the insurer going bankrupt was too big for the global financial system to bear.

Just under 80 per cent of the firm transferred ownership under the terms of the loan.

The Fed said in a statement that a "disorderly failure" of the insurer could "add to already significant levels of financial market fragility".

This is a reference to last week's collapse of Lehman Brothers, which saw the 158-year-old investment bank file for bankruptcy.

The Dow suffered its worst day's trading for seven years on the back of the news - and would have likely fallen further if AIG had been allowed to fail.

Under the terms of the two-year loan, the insurer is obliged to sell off assets "on an orderly basis", the firm said in a statement.

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