WASHINGTON — Minutes from about 25 Federal Reserve Board meetings late last year, released Wednesday, reveal the extent of concern officials had over the potential repercussions that failures of AIG and Citigroup could have triggered in global financial markets.
In the Fed's initial decision to extend an $85 billion lifeline to American International Group Inc., on Sept. 16, 2008, officials judged that "the company faced the imminent prospect of declaring bankruptcy," according to the minutes.
"Board members agreed that the disorderly failure of AIG was likely to have a systemic effect on financial markets that were already experiencing a significant level of fragility and that the best alternative available was to lend to AIG to assist it in meeting its obligations in an orderly manner as they came due," according to the minutes of that meeting.
AIG tapped $62 billion of that loan by Oct. 1, the Fed noted in the minutes of a subsequent meeting on Oct. 6 in which the Board voted to set up a securities lending facility for AIG. As part of their discussion, officials considered "the likelihood that no incremental losses would be assumed by the Federal Reserve due to the high-quality collateral taken under the proposed facility and the additional protections provided by the terms of the proposed facility."
They also weighed "possible risk of loss to the Federal Reserve from the disorderly failure of AIG," according to the minutes.
In the minutes of a Nov. 23 meeting in which Board members agreed to take part in a joint Treasury-Fed-FDIC rescue of Citigroup Inc., the Fed said "available evidence suggested that investors were becoming increasingly concerned about the company's prospects, which would threaten Citigroup's ability to continue to obtain funding."