The total outstanding value of federal government exposure to American International Group Inc. assistance efforts has fallen to about $121 billion, from a high of $183 billion, officials estimate.

The Federal Reserve System and the U.S. Treasury Department started helping AIG, New York, in September 2008, in response to fears that the financial crisis occurring the time “threatened the stability of the U.S. banking system and the solvency of a number of financial institutions, including AIG,” according to officials at the U.S. Government Accountability Office.

By April 2009, government agencies had allocated more than $180 billion to handle tasks such as keeping AIG’s credit default swaps program from imploding and meeting the general financial needs of the parent company and its subsidiaries, GAO officials write.

As of Sept. 2, 2009, AIG had paid $6.8 billion toward principal on two Maiden Lane subsidiaries that the Federal Reserve Board of New York set up.

The Maiden Lane II and Maiden Lane III entities were formed to unwind AIG’s huge, complicated financial products operations.

The Fed and the Treasury Department took “steps intended to protect the government’s interest,” officials write. “These include making loans that are secured with collateral, instituting certain controls over management, and obtaining compensation for risks such as charging interest, requiring dividend payments, and obtaining warrants. Moreover, Federal Reserve and Treasury staff routinely monitor AIG’s operations and receive reports on AIG’s condition and restructuring.”

Despite all of those efforts, “the government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full,” GAO officials warn. “GAO-developed indicators suggest that AIG’s ability to restructure its business and repay the government is unclear at this time…. after a declining trend through 2008 and early 2009, indicators of AIG insurance companies’ financial risk suggest improved financial conditions that were largely results of federal assistance.”

A copy of the GAO report is available here.