NEW YORK (Bloomberg) — The Federal Reserve will provide as much as $37.8 billion in additional liquidity to American International Group Inc.'s regulated insurance units after rescuing the company with an $85 billion loan last month.

The Fed board used emergency powers to authorise the New York Fed to borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral, the Fed said in a statement. The action will help AIG "replenish liquidity" and provide "enhanced credit protection to the New York Fed and US taxpayers," the Fed said.

Chief executive officer Edward Liddy, appointed by the US to run the firm, has been trying to sell units to repay the original loan, which he had said was big enough. AIG, running short on cash after three quarterly losses of more than $18 billion, agreed on September 16 to a government takeover in which the US received a 79.9 percent stake.

The collapse of the New York-based insurer was the subject of Congressional hearings yesterday, which triggered criticism of the company for spending $440,000 on a California conference at a beachside resort less than a week after AIG was rescued.

More on AIG on page 19