Speaking in an interview with CNBC, Federal Deposit Insurance chair Sheila Bair said the U.S. Federal Reserve had done a good job in its handling of the AIG situation, but warned against helping financial markets on an "ad hoc basis", calling for better regulations in the system.

"There needs to be a process in place," Bair told CNBC.

On Tuesday evening, The Federal Reserve Bank of New York announced it would lend up to $85 billion to the American International Group late Tuesday night.

The Fed said in a press release that the "terms and conditions (are) designed to protect the interests of the U.S. government and taxpayers."

The release said that without the bailout, the fall of AIG could lead to market fragility and high borrowing costs.

"This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy," read the report.

The loan is expected to be repaid with the proceeds from the sale of AIG's assets, and the U.S. government will receive a 79.9% equity interest in AIG.

Bair's comments come ahead of her 10 a.m. EDT testimony before the House Financial Services Committee on the home loan program in Washington D.C., where she will be joined by Federal Reserve Governor Elizabeth Duke Assistant Treasury Secretary Phillip Swagel.

By Erik Kevin Franco
©CEP News Ltd. 2008