A bailout of AIG was inevitable in order to protect the financial system, said Fed Vice-Chairman Donald Kohn in testimony before the Senate Committee on Banking, Housing, and Urban Affairs on Thursday.
Echoing comments made by policy-makers at both the U.S. Treasury and the Federal Reserve, Kohn said the widespread insurance operations of AIG, in the judgment of the Fed, "continues to be that, in this time of severe market and economic stress, the failure of AIG would impose unnecessary and burdensome losses on many individuals, households and businesses, disrupt financial markets, and greatly increase fear and uncertainty about the viability of our financial institutions."
The central banker also elaborated on a series of programs and Fed facilities by which the failing insurer will likely be able to repay its debt to the Treasury and the central bank.
He made no comments on monetary policy in his remarks.
By Erik Kevin Franco and edited by Stephen Huebl
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