The U.S. Treasury Department has given American International Group Inc. an improved rescue package to shore up the financial system, according to Neel Kashkari.

Kashkari, the interim assistant secretary for financial stability at the U.S. Treasury Department, makes that statement in New York today at a meeting on the Troubled Asset Relief Program organized by the Securities Industry and Financial Markets Association, New York.

“We used TARP funds to purchase preferred stock in AIG, as part of a broader restructuring of their balance sheet, in coordination with the Federal Reserve,” Kashkari said. “This action was necessary to maintain the stability of our financial system.”

In return, “AIG must comply with stringent limitations on executive compensation for its top executives, golden parachutes, its bonus pool, corporate expenses, and lobbying,” Kashkari said.

“We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures,” Kashkari added. “We worked with the Congress to ensure the TARP included sufficient flexibility to do just this.”

In related news, AIG Chairman Edward Liddy said during an appearance on CNBC that the renegotiated bailout package represents a “quantum improvement” over the original package.

AIG will start the asset sales designed to pay back the government during the current quarter, Liddy said.

The federal government “will do well to hold onto the assets it is purchasing from AIG to maturity” if it wants to recoup its investment, Liddy said.