NEW YORK –– On Sept. 16, the Federal Reserve Bank of New York agreed to lend $85 billion to American International Group (AIG) in exchange for an 80 percent ownership in the country's largest insurance company.

The deal, which was endorsed by the U.S. Federal Reserve Board and the Treasury Department, is designed to prevent the bankruptcy of AIG and give it time to conduct an asset sale.

"The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy," the Fed statement said.

According to the deal, the Fed have the right to veto dividend payments to common and preferred shareholders.

Governor David A. Paterson of New York said Sept. 15 that the state would allow AIG to lend itself $20 billion to boost its capital in order to stave off liquidity.  According to the plan, AIG would be able to shift the funds from its insurance subsidiaries to the parent company.

During a press conference, Governor Paterson said that the move would "provide liquid cash in order to run the day-to-day operations of the parent company."

On Sept. 14, AIG sought a $40 billion bridge loan from the Federal Reserve.  According to AIG, ratings agencies have threatened to downgrade the insurance company’s credit rating, thereby allowing counterparties to withdraw capital from their contracts with the company.

Over the last three quarters, AIG has posted $18 billion in cumulative losses on guarantees it wrote on mortgage-linked securities.  According to an August regulatory filing, ratings downgrades could force AIG to post up to $14.5 billion more in collateral.  AIG's shares plummented 53 percent on Sept. 15.