Fed Loans Backing AIG, Bear Repaid
The Federal Reserve Bank of New York said it has fully recouped more than $70 billion in loans it made to support the 2008 bailouts of Bear Stearns Cos. and American International Group Inc., closing a contentious chapter in the central bank's history.</br></br>On Thursday, the regional Federal Reserve bank said it has been repaid, with interest, on $53.1 billion in loans it made to two crisis-era vehicles that held complex subprime mortgage bonds, home loans, commercial-property loans and other unwanted assets from Bear and AIG. The New York Fed earlier recouped a separate $19.5 billion loan that financed the purchase of mortgage-backed securities from AIG.</br></br>The loan repayments, which followed sales of the formerly toxic assets, end a messy episode in the government's crisis-era rescue programs, which saw the New York Fed take many souring loans and bonds onto its balance sheet when financial markets were in free fall. The moves were criticized for exposing taxpayers to undue risks when many of the assets fell in value for months after they were acquired by the Fed.</br></br>Fed officials defended their crisis lending at the time, saying the central bank makes loans only when it expects to be fully repaid. Officials said they had to take steps to save the financial system from a collapse that threatened the economy's health. On Thursday, New York Fed President William Dudley called the loan repayments a "major milestone" for the bank and the public.</br></br>During the financial crisis, the Fed's balance sheet more than doubled in size to over $2 trillion as it made loans to help stabilize many parts of the nation's debt markets, including those for short-term commercial-paper markets and securities backed by auto loans, credit-card debt and small-business loans. The troubled assets from the Bear and AIG bailouts, held in vehicles called Maiden Lane, were the New York Fed's riskiest holdings.