Support for specific institutions

[The Straight Story]

Support for specific institutions

During the financial crisis, the Federal Reserve provided support to certain specific institutions in order to avert disorderly failures that could have led to even more severe dislocations and strains for the financial system as a whole and harmed the U.S. economy. For the same reason, in certain other cases the Federal Reserve provided support arrangements for certain key firms. This page discusses such actions. Details on the associated risks, interest rates, and collateral for this lending are provided in the collateral and rate setting and risk management sections of this website.
Bear Stearns

To facilitate the acquisition of the Bear Stearns Companies, Inc. by JPMorgan Chase & Co., the Federal Reserve Bank of New York (FRBNY) created and extended credit to Maiden Lane LLC. Maiden Lane LLC is a limited liability company (LLC) formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize the repayment of credit extended to the LLC and to minimize disruption to financial markets. The terms of the loan to Maiden Lane LLC were disclosed on the FRBNY website.

* Summary of Terms and Conditions Regarding the JPMorgan Chase Facility


Federal Reserve Bank of New York

* Maiden Lane transactions

Because the FRBNY is the primary beneficiary of the LLC, the assets and liabilities of the LLC are consolidated onto the balance sheet of the FRBNY. As a result, the assets of the LLC are presented in tables 1, 10, and 11 of the H.4.1 statistical release. Extra detail on the accounts of Maiden Lane LLC is presented in table 4 of the H.4.1 statistical release. The first line in table 4 presents the "fair value" of the portfolio of assets held by the LLC. Fair value is an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market. The next two lines of table 4 present the principal and interest owed to the FRBNY by the LLC.
American International Group

On September 16, 2008, the Federal Reserve announced that it would lend to American International Group, Inc., (AIG) to provide AIG with the time and flexibility to execute a value-maximizing strategic plan. Initially, the FRBNY extended an $85 billion line of credit to the company. On October 8, 2008, the FRBNY was authorized to extend credit to certain AIG subsidiaries against a range of securities. The terms of the loan were disclosed on this website. The credit extended to AIG under both of these programs is presented in table 1 of the H.4.1 and included in "Other loans" loans in tables 10 and 11.

* Statement by the Federal Reserve Bank of New York Regarding AIG Transaction
* Press release, September 16, 2008

On November 10, 2008, the Federal Reserve and the Treasury announced a restructuring of the government's financial support to AIG. As part of this restructuring, two new LLCs were created and the line of credit extended to AIG was reduced by $25 billion. On December 12, 2008, FRBNY began extending credit to Maiden Lane II LLC, a company formed to purchase residential mortgage-backed security (RMBS) assets from AIG subsidiaries. Details of the terms of the loan were published on the FRBNY website.

* AIG RMBS LLC Facility: Terms and Conditions

Because this LLC is consolidated onto the balance sheet of the FRBNY, the loan from the FRBNY to the LLC is not on the balance sheet. To provide details about the loan and other information about the LLC, table 5 in the H.4.1 statistical release provides detail on the principal accounts of Maiden Lane II.

On November 25, 2008, the FRBNY began extending credit to Maiden Lane III LLC, a company formed to purchase multi-sector collateralized debt obligations (CDOs) on which the Financial Products group of AIG had written credit default swap and similar contracts. Details of the terms of the loan were published on the FRBNY website. Because this LLC is consolidated onto the balance sheet of the FRBNY, the loan from the FRBNY to the LLC is not on the balance sheet. To provide details about the loan and other information, table 6 in the H.4.1 statistical release provides detail on the principal accounts of Maiden Lane III.

* AIG CDO LLC Facility: Terms and Conditions

On March 2, 2009, the Federal Reserve and the Treasury announced a restructuring of the government's assistance to AIG. Specifically, the government's restructuring was designed to enhance the company's capital and liquidity in order to facilitate the orderly completion of the company's global divestiture program. As part of this restructuring, on December 1, 2009, the Federal Reserve completed transactions under which the FRBNY received preferred interests in two special purpose vehicles formed to hold the outstanding common stock of AIG’s largest foreign insurance subsidiaries, American International Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). In exchange, the outstanding loan balance held by, and maximum amount available to, AIG under the line of credit were reduced by $25 billion.

* Press release, March 2, 2009

Citigroup

On November 23, 2008, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government would provide support to Citigroup to contribute to financial market stability. In December 2009, the Treasury, the Federal Reserve, and the FDIC agreed to terminate the Master Agreement dated January 15, 2009, with Citigroup. In consideration for terminating the Master Agreement, the FRBNY received a $50 million termination fee from Citigroup. Outstanding expenses in connection with the Master Agreement and not yet reimbursed by Citigroup will continue to be reimbursable.

* Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup November 23, 2008
* Term sheet (42 KB PDF)

Bank of America

On January 16, 2009, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government would provide support to Bank of America to support financial market stability. The terms of the support were disclosed on this website. On May 7, 2009, following the release of the results of the Supervisory Capital Assessment Program, Bank of America announced that it did not plan to move forward with a part of the package of supports announced in January 2009--specifically, a residual financing arrangement with the Federal Reserve and the related guarantee protections that would be provided by the Treasury and the FDIC with respect to an identified pool of approximately $118 billion in assets. In September 2009, Bank of America paid an exit fee in order to terminate the term sheet with the Treasury, the Federal Reserve, and the FDIC. The term sheet was never implemented. The Federal Reserve's portion of the exit fee was $57 million.

* Joint Statement by Treasury, Federal Reserve, and the FDIC on Bank of America, January 16, 2009
* Term sheet (77 KB PDF)

http://www.federalreserve.gov/monetarypolicy/bst_supportspecific.htm