NEW YORK—The Federal Reserve Board of New York has agreed to lend life insurance units of American International Group Inc. up to $37.8 billion under a securities lending agreement, AIG announced.

Under the agreement, the New York Fed will borrow, on an overnight basis, investment-grade, fixed-income securities from the AIG subsidiaries in return for cash collateral, AIG said in a statement.

According to the Federal Reserve Board, drawdowns to date under the existing $85 billion Fed credit facility have been used in part to settle transactions with counterparties returning these third-party securities to AIG.

“This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities,” the Federal Reserve Board said in a statement.

AIG has already drawn $61 billion from the Fed credit facility as of Sept. 30, the insurer reported last week.

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By Judy Greenwald

Copyright © 2008 Crain Communications, Inc.