AIG - Securities Lending - Leverage

  • 2008 Financial Crisis - AIG - Securities Lending - 1) Ed Royce (R-CA), Dodd vs Eric Dinallo
  • 1) Ed Royce (R-CA) - And then came the fall of AIG.
    • And the bets that brought down AIG were made through the firm’s securities lending division as well as the financial products unit.
    • As we consider the events of the past as they relate to regulatory reform, it is worth noting that the securities lending division was facilitated and funded by AIG’s insurance subsidiaries as a vehicle to make unwise bets on the U.S. housing market.
    • At least, that is the way I would put it, since they were leveraged 170 to 1.
  • Using capital from their insurance subsidiaries with the approval of the various State insurance regulators, the securities lending division, in tandem with the financial products unit, put at risk the
    entire company and, to some degree, the broader financial system.

2009 0514 - GOV (House) - How Should the Federal Government Oversee Insurance?  ---  [BonkNote]

  • (p9-10) - Eric Dinallo -  I think that to some extent, AIG is a microcosm of our regulatory regime, love it or hate it, and I want to try to explain what I think were the roles of at least the State insurance regulators here and try to clear up any confusion about responsibility that I know existed a couple of days ago, although it sounds like a lot of that has been clarified.
    • I think the State regulators did a very good job on what their main assignment is, which is solvency and policy holder protection.
    • I think that the operating companies of AIG, particularly the property companies, are in excellent condition.
    • The life insurance companies are experiencing a lot of the same stresses that other life insurance companies are experiencing across the country and the world.
    • I think that it is important to put some of these numbers in context, because I disagree with the concept that the securities lending program had much of anything to do with the problems at AIG.
    • We calculate that without the Federal intervention, the life insurance companies are approximately $10 billion solvent, so they were solvent prior to the intervention.
    • The amount that was written, on Senator Shelby's numbers, the amount that was written and put into the securities lending pool wasn't a leveraging, it was a direct undertaking, would be, say, I think $40 billion was invested in RMBS.
    • That would be against $400 billion of assets in the life insurance company. So there was 10 percent invested in AAA-rated RMBS.
    • The loss, as you say, we will adopt the number of $17 billion.
    • So that is less than 5 percent of the losses of the assets at the life insurance companies could be laid at the door of securities lending investing in RMBS, which I submit $17 billion is a big number, but as a percentage basis, I think it is not an overwhelming number.
    • I would say that the securities lending business was used to expose itself to RMBS businesses.
    • But if you look at the entirety of the assets as invested by life insurance companies, it was a modest percentage.

2009 0305 - GOV (Senate) - American International Group: Examining What Went Wrong, Government Intervention, And Implications for Future Regulation, (CSPAN) Government Intervention and Regulation of AIG, Chris Dodd (D-CT)   ---   [BonkNote]