AIG - FRB - Federal Reserve Board

  • 2008 0902 - FCIC - FRB (Danielle Vicente) - AIG Liquidity and Access to the PDCF - 4p
    • Liability runs: not just a banking problem
    1. AIG is an active securities lender; the firm takes a large portion of its securities and lends them to institutions and investors who pledge collateral against these securities.
      • AIG then takes the collateral and invests it in assets with longer durations in order to earn a spread.
      • This is possible because the liabilities due to the investors are normally rolled over.
      • Currently, AIG's assets associated with securities lending are experiencing losses, and are valued at $59.5, less than the $75.1 billion in liabilities.
    2. Potential liquidity need:
      • Securities lending contracts range in maturity from one day to six months.
        • Given the current operating environment, roll over risk is substantial, and could mirror a run on deposits.
        • Therefore, AIG's potential overnight liquidity needs for securities lending varies, but is limited to $75 billion.
  • 2008 0912 - FCIC - FRB - FRB Patricia Mosser email re AIG - 3p
    • Situation is a mess -- AIG is open to having someone go over/call in tonight to start the process.
    • Any chance you could call in at about 8 pm or so tonight?
  • 2008 0912 - FCIC - FRB - AIG Meeting Notes - FCIC-AIG0021217 - 2p
    • AIG is facing serious liquidity issues that threaten its survival viability.
    • Rating triggers:
      GICs are issued out of AlG-Financial Products (AlG-FP), insured by the holding company.

      • downgrade by 1 rating agency leads to $10B in collateral calls, plus an additional $4B-$5B in portfolio obligations that are puttable if  downgraded (total of $15B in liquidity needs)
      • downgrade by 2 rating agencies - additional $3B in liquidity needs If downgraded, they must post half of the additional collateral within 2 days, and the other half in 10 days.
    • Securities lending (mostly out of the insurance companies) - about $69B in liabilities, and the holding company has only enough cash to fund ½ of that, if the sec lending counterparties turn away from the AIG name.
    • Mobility of liquidity - most cash within the organization is 'trapped' in regulated entities  <Bonk: Insurance Companies> and is not freely transferable to AIG holding company or AIG Financial Products (the derivatives and trading sub) for its liquidity needs.
      • Today, the holding company started with $9B in liquidity, used $1 .4 for CP, but was able to upstream about $1.4B in 'dividends' from subs up to holding company, but little ability, in general, to use subs to upstream liquidity to holding co or its non-regulated subs.
  • 2008 0913 - FCIC - FRB (Brian Peters/NY/FRS) -FRBNYAIG00510 - 2p - <includes: 2008 0912 - FCIC - 2008-09-12 Alejandro LaTorre Email to Geithner et al re Update on AIG
    • Outside of the holding co., the insurance subs have about $68B in securities lending liabilities to the 12 largest firms.
    • Program is managed by the holding company (AIG Financial Products).
  • 2008 0916 (3:30pm) - FCIC - AIG / FRB ? - Email from Larry Nath Regarding Speaking To The Fed Possible AIG Bankruptcy - 1p
    • Bob and I spoke with Geitner.
    • Will will hear within the hour.
    • The Secretary and Geitner will call us.
    • We continue to plan for possible filing for Bankruptcy.
    • We have told this to the Fed.
  • 2008 0916 - FCIC - FRB - Summary of AIG Bankruptcy Impact - FCIC-SSI0007460 - 1p
    • Tim, Attached is a document that summarizes some of our discussion earlier.
    • The key takeaway is that AIG could be more systemic in nature than Lehman due to the retail dimension of its business.
    • Insolvency should be managed in a way that insulates the retail activity from contagion arising from the wholesale part.
    • Stating the obvious, intervention needs to insulate retail acitivities (inc. those in the parent, like stable value wraps) in a way that inspires confidence among the public to avoid a potential crisis of confidence.
    • Coordination issues among state regulators could make this difficult.
    • The counterparty exposure figures you asked for will be sent by Supervision under a seperate cover.

      Regards, Alex

  • 2008 0916 - FCIC - FRB - Systemic Impact of AIG Bankruptcy attachment to FRBNY -  internal email from Alejandro LaTorre to Geithner - FCIC-SSI0007443 - 3p
    • Filing at holding co. level may, however, cause liquidity stresses at the insurance subsidiary level because of exposures to affiliates, and! or runs because of name aversion (risk of run mainly at the life insurance subsidiaries).
    • I Key Differences between Impact of AIG and Lehman Failure
    • II. How the Bankruptcy Process Might Unfold
    • III. Impact on Financial Counterparties (see details from Bank Supervision)
    • IV. Impact on Market Liquidity and Related Spillover Effects