WASHINGTON — A watchdog agency said Monday the Federal Reserve Board could have done more to document the basis for its 2008 bailout of insurance giant American International Group Inc.
"While the Federal Reserve Board exercised broad emergency lending authority to assist AIG, it was not required to, nor did it, fully document its interpretation of its authority or the basis of its decision," the Government Accountability Office said in a
In September 2008, the Fed undertook several steps under then-existing emergency lending powers to avert AIG's failure, which officials feared could have hurt the financial system. The Fed and the Treasury Department authorized more than $182 billion combined to assist the company. (Last year, the Dodd-Frank Act banned such assistance for single firms, allowing it only for multiple institutions meeting broad eligibility.)
The report said while the central bank's actions in aiding AIG followed the law, "they raised a number of questions" about not only the central bank's efforts to document its emergency authority, but also to what degree the Fed influenced how AIG posted securities filings. The report also cited the Federal Reserve Bank of New York's challenges in limiting conflicts of interests among vendors used during the bailout.
"A series of complex relationships grew out of the government's intervention, involving FRBNY advisors, AIG counterparties, and others, which could expose FRBNY to greater risk that it would not fully identify and appropriately manage conflict issues and relationships," the report stated.
While the GAO report offered no new recommendations for the Fed, the watchdog said a review of the AIG bailout can improve how regulators deal with future crises.
"As with past crises, AIG assistance offers insights that could help guide future government action and improve ongoing oversight of systemically important financial institutions," the report said.
