Some of the billions of dollars the U.S. government paid to bail out American International Group Inc
AIG has put in escrow some money for at least one major bank, Deutsche Bank AG
The money will be released to the bank if mortgage defaults rise above a certain level, it said.
Investment banks such as Goldman Sachs Group Inc
From mid-September to the end of last year, AIG and the government paid $5.4 billion to Deutsche and $8.1 billion to Goldman under credit default swap contracts the insurer had written, the paper said.
It is not known which hedge funds made those bets with specific banks, the paper said, adding several large funds made big, ultimately profitable, wagers that mortgage defaults would increase.
An AIG spokeswoman declined to comment to the paper.
A spokesman for Deutsche Bank told the paper that the bank's exposure to AIG was well-collateralized and hedged.
A Goldman spokesman also told the paper that the firm's exposure was collateralized and hedged.
AIG, Deutsche Bank and Goldman Sachs could not be immediately reached for comment by Reuters.
AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that U.S. President Barack Obama is trying to address with plans for trillions of dollars in spending.
(Reporting by Ajay Kamalakaran in Bangalore, Editing by Ian Geoghegan)