AIG makes $15.7-billion bid to repurchase mortgage-backed securities

American International Group Inc. offered to pay $15.7 billion to repurchase mortgage-backed securities from a Federal Reserve rescue fund as the bailed-out insurer works toward independence from U.S. regulators.

The so-called Maiden Lane II Fed facility was created in 2008 to hold mortgage-linked assets that AIG had purchased with collateral turned over by Wall Street banks through securities-lending deals.

When the housing market collapsed, AIG was unable to reimburse banks that wanted their collateral back, prompting the Fed to make about $22.5 billion available to take the assets off the New York-based company’s balance sheet.

The value of some of the securities subsequently rebounded, and AIG reduced its debts under a $182.3-billion bailout by selling units including non-U.S. life insurers.

“The conditions that necessitated Maiden Lane II in the first place have been resolved,” AIG said in the letter. The company is more stable and is able to match the assets with “appropriate longer-term insurance liabilities, not shorter-term liabilities.”

The New York Fed didn’t immediately comment.