Fed Seeks Full GAO Review of AIG Involvement

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Jan. 19, 2010.

Federal Reserve Board Chairman Ben Bernanke said the Fed would welcome a “full review” by the Government Accountability Office of all aspects of its involvement in extending credit to American International Group (AIG), Inc.

In a January 19 letter to the GAO, Bernanke wrote that such a review would serve to provide the public “the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress.”

The extension of credit to AIG in September 2008 was made in order to prevent the “imminent disorderly failure of the company, an event that would likely have led to a significant intensification of an already severe financial crisis,” Bernanke said. He added that the assistance was not made without significant conditions and protections for taxpayers.

Treasury Secretary Tim Geithner is scheduled to testify January 27 before the House Oversight and Government Reform Committee on the issue of the collapse and federal rescue of AIG. The hearing is expected to examine Geithner’s role in the intervention, the decision to compensate AIG’s credit default counterparties at par, and the role of the New York Federal Reserve Bank and other federal agencies in AIG’s failure to publically disclose the counterparty payments.

House Financial Services Committee ranking member Spencer Bachus, R-Ala., meanwhile, is calling for a hearing to “examine the disparity of treatment by AIG at the direction of the New York Fed.”