Political Economy Commons^™

Lessons Learned: Chester B. Feldberg, Maryann Haggerty

Journal of Financial Crises

Chester B. Feldberg worked for the Federal Reserve Bank of New York (FRBNY) for 36 years in a variety of roles. In the aftermath of the Global Financial Crisis, he served as a trustee for the AIG Credit Trust Facility (2009-2011). The trust was established in early 2009 to hold the equity stock of American International Group Inc. (AIG) that the U.S. government had received as a result of the 2008 AIG bailout. The three trustees were responsible for voting the stock, ensuring satisfactory corporate governance at AIG, and eventually disposing of the stock.

When he was named as a …

The Rescue Of American International Group Module Z: Overview, Rosalind Z. Wiggins, Aidan Lawson, Steven Kelly, Lily S. Engbith, Andrew Metrick

Journal of Financial Crises

In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. …

The Rescue Of American International Group Module E: Maiden Lane Iii, Lily S. Engbith, Devyn Jeffereis

Journal of Financial Crises

Starting in mid-2007, American International Group (AIG) faced increasing collateral calls from counterparties looking to protect their positions in credit default swap (CDS) contracts that AIG had written on residential and commercial collateralized debt obligations (CDOs) (US COP 2010, 28-30). Per these agreements, the AIG parent company was responsible for insuring the value of the CDOs against the risk of a negative credit event, such as default (GAO 2011, 5; US COP 2010, 29-30). AIG’s immediate need for liquidity on September 16, largely driven by a securities lending program and those collateral calls, prompted the Federal Reserve to lend the …

The Rescue Of American International Group Module D: Maiden Lane Ii, Lily S. Engbith, Devyn Jeffereis

Journal of Financial Crises

In September 2008, American International Group (AIG) faced increasing difficulty in returning cash collateral to counterparties looking to terminate, rather than roll over, their securities lending agreements, in part because the company had invested the collateral in residential mortgage-backed securities (RMBS), which were becoming illiquid. The Federal Reserve Bank of New York (FRBNY) provided liquidity to the company, including through the Securities Borrowing Facility (SBF), which allowed for the repayment of cash collateral but did not address the falling values of the RMBS. In November 2008, the Federal Reserve Board authorized the creation of Maiden Lane II (ML II), a …

The Rescue Of American International Group Module B: The Securities Borrowing Facility, Lily S. Engbith, Alec Buchholtz, Devyn Jeffereis

Journal of Financial Crises

In 2008, American International Group (AIG) was among the largest insurance corporations in the world and maintained a profitable securities lending program. However, AIG invested much of the cash collateral received from counterparties in residential mortgage-backed securities, whose value began to collapse rapidly and unexpectedly, creating liquidity strain for AIG when borrowers returned their securities. Because of these strains, credit downgrades, and losses, in September, the company sought assistance from the Federal Reserve which, on October 6, 2008, approved the establishment of the Securities Borrowing Facility by the Federal Reserve Bank of New York (FRBNY). The FRBNY agreed to loan …

Basel Iii B: Basel Iii Overview, Christian M. Mcnamara, Michael Wedow, Andrew Metrick

Journal of Financial Crises

In the wake of the financial crisis of 2007-09, the Basel Committee on Banking Supervision (BCBS) faced the critical task of diagnosing what went wrong and then updating regulatory standards aimed at preventing it from occurring again. In seeking to strengthen the microprudential regulation associated with the earlier Basel Accords while also adding a macroprudential overlay, Basel III consists of proposals in three main areas intended to address 1) capital reform, 2) liquidity standards, and 3) systemic risk and interconnectedness. This case considers the causes of the 2007-09 financial crisis and what they suggest about weaknesses in the Basel regime …

Ireland And Iceland In Crisis C: Iceland’S Landsbanki Icesave, Arwin G. Zeissler, Thomas Piontek, Andrew Metrick

Journal of Financial Crises

At year-end 2005, almost all of the total assets of Iceland’s banking system were concentrated in just three banks (Glitnir, Kaupthing, and Landsbanki). These banks were criticized by certain financial analysts in early 2006 for being overly dependent on wholesale funding, much of it short-term, that could easily disappear if creditors’ confidence in these banks faltered for any reason. Landsbanki, followed later by Kaupthing and then Glitnir, responded to this criticism and replaced part of their wholesale funding by using online accounts to gather deposits from individuals across Europe. In Landsbanki’s case, these new deposits were marketed under the name …