NY Fed 'paid AIG banks too much'
AIG had to be rescued in 2008
Regulators involved in the rescue of AIG may have overpaid other banks when cutting a deal a report says.
The New York Fed paid AIG's business partners face value for securities so they would cancel insurance-like contracts AIG had written.
But officials used a weak negotiating strategy Special Inspector General Neil Barofsky's report said.
AIG was initially bailed out for $85bn (£50bn) but its total rescue package eventually amounted to over $180bn.
The report criticised both the Federal Reserve Bank of New York and the US Federal Reserve for failing to use their "considerable leverage" to force AIG's counterparties to accept less than the aaaa amount for the assets.
As a result 16 banks including Goldman Sachs Deutsche Bank Societe Generale and Royal Bank of Scotland were paid more than $62bn.
The initial bail-out "was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG" the report said.
It also criticised the New York Fed chaired at the time by current Treasury Secretary Timothy Geithner for insisting that all banks be treated equally in negotiations and for not treating US banks differently from foreign institutions.
The New York Fed and Federal Reserve Board issued a joint letter to accompany the report.
"We believe that the Federal Reserve acted appropriately in conducting these negotiations and that our negotiating strategy including the decision to treat all counterparties equally was not flawed or unreasonably limited" the letter said.
The Treasury Department said that the report overlooked "the central lesson" learned from the AIG rescue.
"The lesson is that the federal government needs better tools to deal with the impending failure of a large institution in extraordinary circumstances like those facing us last fall" a Treasury spokeswoman said.
She also called for the approval of an Obama administration proposal for new powers to step in and shut such firms down.