U.S. Federal Reserve Chairman Ben Bernanke on Tuesday asked a government auditor to conduct a full review of the central bank's actions in bailing out insurer AIG, seeking to quell a controversy that risks undermining the Fed's authority.
Bernanke said in a letter to the acting head of the Government Accountability Office that the Fed loaned billions to American International Group Inc.
The U.S. House of Representatives Oversight and Government Reform Committee is gearing up for a hearing next week into whether the New York Federal Reserve Bank improperly limited public disclosures about payments to banks to unwind $62.1 billion in AIG credit default swaps.
Republican Representative Darrel Issa has pushed aggressively for a probe and has called on the committee to call Bernanke as a witness.
Lingering public anger over the AIG bailout and bonuses paid to some AIG executives has fueled opposition to a second term for Bernanke as Fed chairman, although he is still widely expected to win needed Senate approval. A vote could come as early as Friday.
It also has provided ammunition to opponents of the Obama administration's financial reform plans, which would boost the Fed's role significantly as a regulator of important financial companies. Some lawmakers want to subject the Fed's monetary policy deliberations to congressional review.
Email traffic between AIG and New York Fed officials and lawyers released by Issa in recent weeks has shown that the New York Fed was reluctant to disclose specific details of AIG payments to banks after the taxpayer funded bailout, which has grown to over $180 billion.
Key details of the payments remain sealed under a Securities and Exchange Commission order.
The emails have raised questions about the role played by U.S. Treasury Secretary Timothy Geithner, who headed the New York Fed at the time.
Geithner was recused from AIG decisions after he was nominated to run Treasury on November 24, 2008. But he, Bernanke and former U.S. Treasury Secretary Henry Paulson are considered key architects of the bailouts of AIG.
The committee has asked Geithner and Paulson to testify at the January 27 hearing.
Bernanke told GAO the Fed extended a credit facility to AIG to prevent the imminent disorderly failure of the company, an event that would likely have led to a significant intensification of an already severe financial crisis and a further worsening of global economic conditions.
Bernanke added that the Fed loan facility was fully secured and should be fully repaid by September 16, 2013, five years after it was granted, as the company reorganizes and unwinds its operations.
A spokesman for GAO said the agency would have to review the request for an audit.
(Editing by Kenneth Barry)