Bernanke Is Asked for Fed’s AIG Documents by Issa (Update2)

By Hugh Son

Feb. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has been asked by a Republican lawmaker to turn over documents related to the decision to rescue insurer American International Group Inc.

The Federal Reserve should deliver the records by March 2, according to a letter dated yesterday from Representative Darrell Issa of California, ranking member of the House Oversight and Government Reform Committee. Bernanke last month invited the Government Accountability Office to conduct a “full review” of the central bank’s actions tied to the bailout that swelled to $182.3 billion.

“In light of your professed commitments and your apparent desire to cooperate with this committee’s investigation, I am writing to request that you voluntarily produce to this committee all records and communications in the possession of the Federal Reserve” regarding the rescue, Issa wrote.

Issa is seeking to widen the probe into what he’s called a “backdoor bailout” of banks that got funds from AIG after its rescue and efforts by the Federal Reserve Bank of New York to withhold details from the public about the payments. Treasury Secretary Timothy Geithner, who ran the New York Fed when AIG was bailed out in 2008, testified last month that the payments were necessary and that subordinates made disclosure decisions.

Bernanke wasn’t “directly involved” in discussions regarding what AIG released in regulatory filings, he wrote in a Jan. 27 letter to Issa.

The bailout was designed 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,” Bernanke said in the letter.

‘Not in Full Compliance’

The New York Fed, which turned over about 250,000 pages of documents after the oversight committee issued a subpoena, is “not in full compliance” with the demand, Issa wrote in a separate letter to committee Chairman Edolphus Towns. The regulator limited material to the period from September 2008, the month of the bailout, to May 2009, Issa wrote to the New York Democrat.

“The committee’s investigation of the AIG bailout, counterparty payments and subsequent cover-up is far from complete,” Issa wrote to Towns, asking the chairman to demand more documents from the New York Fed.

The Fed received Issa’s letter and is reviewing it, said David Skidmore, a Fed spokesman. Jenny Rosenberg, a spokeswoman for Towns, didn’t immediately return a call seeking comment.

Issa said in the letter that Federal Reserve documents, which he is aware of through a whistleblower and Senator Jim Bunning, Republican of Kentucky, “show troubling details about Chairman Bernanke’s role in the AIG bailout.” Issa has previously said Fed documents may show that Bernanke discouraged a review into whether AIG should be allowed to fail.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: February 18, 2010 16:13 EST