Interim Assistant Secretary for Financial Stability Neel Kashkari said today's announcement of the expanded AIG Bailout is necessary for market stability.

Delivering remarks at the Securities Industry and Financial Markets Association's Summit on the Troubled Asset Relief Program, Kashkari said financial markets remain fragile and that the U.S. Treasury is "ready to prevent systemic failures."

"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," said kashkari. "This action was necessary to maintain the stability of our financial system."

The U.S. Treasury has revised its loan agreement with U.S. insurance company AIG, adjusting the terms of the loan to function under the Troubled Asset Relief Program.

According to the new terms, the Fed is loaning the firm $60 billion rather than the original $85 billion, and the Treasury Department will purchase $40 billion in the firm's shares under the TARP program.

Kashkari said it will "take a few months" to finish the TARP investment program.

By Steve Stecyk and edited by Sarah Sussman
©CEP News Ltd. 2008