The Federal Reserve announced yesterday that it had invoked its Section 13(3) powers to authorize the Federal Reserve Bank of New York to provide up to an additional $37.8 billion of liquidity to AIG. Under the securities lending agreement, the New York Fed will borrow, on an overnight basis, investment-grade, fixed income securities from certain regulated U.S. insurance subsidiaries of AIG, in return for cash collateral. According to a statement from AIG, “these borrowings by the New York Fed will allow AIG to replenish liquidity to the securities lending program on an as-needed basis, while providing possession and control of these third-party securities to the New York Fed.” The drawdowns on the existing $85 billion New York Fed loan facility have been used partially to settle transactions with counterparties returning borrowed securities to AIG, and the New York Fed facility will provide AIG with liquidity to settle these transactions.