The Federal Reserve Bank of New York said Friday that a broad legal release that was part of agreements in 2008 to cancel credit derivative contracts between American International Group Inc. and various banks was put forth by lawyers for the insurer and accepted by the regional Fed bank.

According to a statement Friday on the New York Fed's website, the legal waiver resulted from "AIG's desire for a broader release for itself." The statement and related documents were released partly in response to questions last week by the Financial Crisis Inquiry Commission, a bipartisan panel probing the causes of the crisis.

At a hearing last week, the panel said it wanted to know more details about the waiver, as well as whether financial firms such as Goldman Sachs Group Inc. influenced or benefited from the legal release since they can't be sued by AIG over mortgage deals that have been terminated.

In November 2008, the New York Fed decided to acquire $62 billion of mortgage securities from AIG's trading partners in order to terminate AIG's obligations to insure the securities against losses. U.S. and European banks received total payouts amounting to the full face value of the securities. The terminations came after the U.S. government's initial September 2008 rescue of AIG, which had struggled to meet collateral demands from firms that had bought credit-default swaps on more than $70 billion in mortgage assets that soured.

The New York Times reported last month that AIG was "required to forfeit its right to sue several banks ... over any irregularities with most of the mortgage securities it insured in the precrisis years." The newspaper also said federal regulators "forced" the legal waiver upon AIG.

On Friday, the New York Fed said neither it nor its outside lawyers "directed" AIG to insert a broad legal waiver into the termination agreements. It described the waiver as "a standard legal provision," and noted that the wording of the release in the AIG termination agreements was similar to releases contained in agreements by another insurer to terminate credit derivative contracts with its trading partners a few months earlier. That other company is bond insurer Syncora Holdings Ltd., which was advised by the same outside lawyers as AIG, Weil, Gotshal & Manges LLP.

In a statement Friday, the New York Times stood by its story saying the New York Fed was given "ample opportunity to comment on every aspect of the story before publication." The information presented Friday "does nothing to undermine our confidence in what we reported." The paper added the story "was based on sources with direct knowledge of the events." An AIG spokesman had no comment.

According to the New York Fed's statement, a draft agreement to terminate the derivative contracts was first sent by the regional Fed bank's outside lawyers at Davis Polk & Wardwell LLP to AIG and its lawyers for review on Nov. 6, 2008.

That version of the agreement "did not contain broad releases for either AIG or the counterparties," but proposed to release both sides from "further obligations" under the contracts, the statement said.

AIG's outside lawyers at Weil, Gotshal reviewed the draft, consulted with the insurer, and responded the following day with a marked-up version of the termination agreement that included a broadened legal release, according to the statement. The language essentially required AIG and the banks to "forever release" each other "from any and all claims and unknown claims" relating to the canceled credit-default-swap contracts, including claims for fraud, negligence and misrepresentation, according to a copy of the agreement.

The New York Fed said its lawyers did not have any comments on the broadened waiver, so the regional Fed bank signed off on it.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.