2008 0916 - AIG Board of Directors Minutes - <All of It> - 24p 

• (p2-3) - Mr. Willumstad next brought the Board up to date on recent collateral calls and reported that:
  • ...the Corporation's guaranteed commercial paper did not roll.
  • ...the securities lending program was also having trouble rolling the borrowings
  • ...and that there had also been strong redemption demand in the United Kingdom on a money market fund product.
• (p) - Mr. Willumstad also indicated that he expected downgrades by the major rating agencies later in the day. 
• (p8) - David Herzog, AIG Senior Vice President and Comptroller, then joined the meeting.
  • Mr. Herzog explained AIG's immediate liquidity needs.
  • He stated that AIG had used $10 billion to $11 billion through the securities lending program and was still approximately $4.5 billion short in that program.
  • Mr. Herzog explained that the securities lending program resides in the operating insurance companies, which are state regulated. 
  • The regulators made clear that if AIG made use of insurance company assets to pay the securities lending liabilities without the permission of the regulators, the regulators would seize the insurance companies.
  • Mr. Herzog then explained that because AIG did not have sufficient funds to pay the liabilities that would come due tomorrow, if AIG does not obtain a loan to provide funds for the next day, the securities lending program will go into default.
  • Because the securities lending liabilities reside at the individual insurance company level, that would cause the insurance companies to be in default and the regulators would likely seize the insurance companies. 
• (p9) - Mr. Bensinger added that the New York Department of Insurance stated that it would seize the New York insurance companies if AIG went into bankruptcy.
  • Mr. Herzog agreed and stated that, based on his discussions, other insurance commissioners would likely do the same.
• (p10) - Mr. Herzog then explained that the cash needs for securities lending - which are in the regulated insurance companies and therefore not eliminated in a bankruptcy filing - for the remainder of the week were significant, and reviewed with the Board estimates of the amounts that would be required.