Dots - AIG - Securities Lending

2010 0701 - FCIC Hearing - 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel - [PDF-313p - CSPAN-Video

  • 37:00 / (p205/206) - Dinallo, Born (FCIC) -
    • COMMISSIONER BORN: Thank you. Mr. Dinallo, some people have suggested that the real problem at AIG related to its securities lending program, and that its exposure to AIG Financial Products through that company's credit default swap business was a mere secondary problem that it had.
      • Do you agree with that?
    • Eric DINALLO: I don't--no, I don't believe that's true.
      • I mean, at least the calls that I received and the reason that we all ended up at the Fed and working at AIG throughout that week was the problems with the Financial Products Division, whose issues I think dwarfed the securities lending issues.
      • The securities lending issue was an issue, and it certainly exacerbated the situation.
  • She explained that most of the money drawn from the facility went to securities lending counterparties. 
  • Dixie asked how much money was drawn from the facility between September 16 and November 10 when the Maiden Lane transactions were announced.
    • Ms. Dahlgren said “north of $60 billion, but I’d have to verify that. (p2)

2010 0430 - FCIC memo of staff interview with Sarah Dahlgren, New York Fed - 5p

  • (p3) - In 2008, AIG’s securities lending operation lost billions of dollars when borrowers began to return securities and demand their cash collateral back.
    • AIG didn’t have that cash, because it was invested in mortgage-backed securities that were rapidly losing value.
  • Those securities lending losses, which were separate from the CDS losses at AIG FP, were part of the reason for the federal bailout.

2021 - Lessons Learned: Eric Dinallo, Journal of Financial Crises - 6p

23. On Thursday, September 11, 2008, AIG executives brought in bankers from JP Morgan and a Blackstone consulting group, who determined that AIG would need at least $40 billion.

  • However, on Sunday morning, September 14, AIG’s outside advisers discovered that the Company’s securities lending business needed a separate injection of as much as $20 billion.
  • As a result, an offer of a $20 billion lending facility that the New York State Insurance Superintendent, Eric Dinallo, had considered establishing for the benefit of AIG became moot since it was becoming clear the Company needed at least $60 billion of financing.

American International Group, Inc. 2008 Securities Litigation - Case 1:08-cv-04772-LTS Document 95 Filed 05/19/2009 Page 17 of 289

But a bigger problem loomed.

  • JPMorgan’s bankers discovered the shortfall at A.I.G. was not just $40 billion, but might be closer to $65 billion, because so much of A.I.G.’s securities lending business was tied up in illiquid assets.

2008 0917 - WSJ - Throwing a Lifeline to a Troubled Giant, Andrew Ross Sorkin -  6p

(p219) -

  • Mr. MILLSTEIN. And the securities lending part——
  • Mr. SILVERS. Right, exactly.
  • Mr. MILLSTEIN. They refused to roll over——
  • Mr. SILVERS. Okay, so we all agree.
  • Mr. MILLSTEIN. Okay

2010 0526 - COP - Hearing - TARP and Other Government Assistance for AIG - 241p

Insurance Regulators

  • 2009 0305 - GOV (Senate) - American International Group: Examining What Went Wrong, Government Intervention, And Implications for Future Regulation - Government Intervention and Regulation of AIG (CSPAN) - [PDF-72p, VIDEO-CSPAN
    • 15 - Shelby, Securities lending, State Insurance Regulation,  Disturbing Story
    • 33:00 - Eric Dinallo (NY / NAIC) - Securities Lending didn't have anything/much to do with AIG Collapse, run on aig life, <Reputational Risk>, 
    • Securities Lending, RMBS, Liquidity, <C-3, 1980 SOA Paper>, Run on AIG, 
    • Scott Polakoff - OTC, Donald Kohn


  • (p31) - Joel Ario (NAIC - PA):  But there is a well there where if we are pressed real hard on some sensitive topics, we don’t have clear authority to go into the holding company level.
    • And so I do think you need somebody that has clear authority at that holding company level as well.