WASHINGTON BUREAU — Federal Reserve Board Chairman Ben Bernanke today defended the actions the Fed took to bail out American International Group Inc. (NYSE:AIG) and asked the U.S. Government Accountability Office to study the Fed's AIG-related decisions.
Bernanke offered to give the GAO access to all records and personnel necessary to conduct the review, and he said the Fed provides detailed and continual information regarding its investment in AIG, New York.
Bernanke made the request for a GAO review in a letter to Gene Dodaro, the acting U.S. comptroller general.
The request was made as the agency has come under fire for not demanding "haircuts" when it helped AIG comply with contracts that called for it to provide collateral for credit default swap counterparties.
The counterparties had paid AIG to hedge the value of investments in mortgage-backed-securities and collateralized mortgage obligations.
The House Oversight and Government Reform Committee has invited Bernanke to testify Jan. 27 at a hearing on allegations that officials at the Federal Reserve Bank of New York told AIG executives to keep the names of trading partners, and news of the decision to make the trading partners whole, out of securities filings.
The Fed had no authority to regulate any of AIG's operations, and the failure of AIG would have made the economic crisis even worse, Bernanke writes.
The Fed is on track to recoup its investment in AIG by September 2013, Bernanke adds.
"The Federal Reserve's credit facility is fully secured and should be fully repaid by September 16, 2013, as the company reorganizes and unwinds its operations," he writes.
The GAO should conduct a study of the Fed because it "is important that the Congress and the public understand that, in our actions regarding AIG, the Federal Reserve and the Treasury acted in the best interests of the United States to preserve the financial system and to protect households and businesses from potentially calamitous effects on the U.S. economy, while doing everything possible to protect the American taxpayer," Bernanke writes.
"In this spirit," Bernanke writes, and "to afford the public the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress, the Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG."
None of AIG's operations were subject to Fed supervision, and the agency extended credit to AIG "to prevent the imminent disorderly failure of the company, an event that would likely have led to a significant intensification of an already severe financial crisis and a further worsening of global economic conditions," Bernanke writes.
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