The U.S. government has agreed to provide an emergency loan of US$85 billion to save the nation's largest insurer American International Group (AIG) from bankruptcy, the Federal Reserve (Fed) announced Tuesday.

A woman exits the American International Building, world headquarters of American International Group (AIG) in New York, September 16, 2008, the United States. The Federal Reserve announced an 85 billion rescue loan to insurance giant American International Group (AIG). [Hou Jun/Xinhua]

The U.S. Treasury Department was in full support of the decision, the Fed said.

In exchange for the loan, the government will receive a 79.9 percent equity stake in AIG, the Fed said.

The insurance giant does business with almost every financial institution in the world. It insures US$88 billion worth of assets and plays an outsized role insuring mortgages and corporate loans.

Even more threatening was its integral role in the murky world of hedge funds and credit derivatives.

A "disorderly failure" of AIG could undermine already fragile financial markets, the Fed determined.

The government's move to rescue AIG came one day after the collapse of the nation's fourth-biggest investment bank Lehman Brothers and the sale of the third-biggest investment bank Merrill Lynch to Bank of America sent financial markets at home and abroad tumbling.

(Xinhua News Agency September 17, 2008)