Boston Federal Reserve President Eric Rosengren said Thursday that it was necessary to bail out AIG because last year's financial crisis would have been "severely exacerbated" if the company had been allowed to fail.
Speaking at the Massachusetts Newspaper Publishers Association's annual meeting, Rosengren said that AIG was a "systemically important and risky" firm and was a major insurer against credit losses on securities, including those backed by subprime mortgages.
"Banks and financial firms that thought their AIG insurance protected them against losses on the mortgage-based securities they held would teeter on insolvency if, to their surprise, their AIG insurance evaporated and they saw large additional losses," he said in prepared remarks.
He added, "In short, the failure of AIG would have caused very large losses at, and indeed possibly failures of, many financial firms."
Rosengren went on to say that the crisis would have been worse if AIG had been allowed to fail, and that U.S unemployment rates could be higher than their current levels.
The Boston chief added that the actions, while not ideal, were necessary because of Federal Reserve Regulatory gaps that need to be addressed.
"First, no one was explicitly responsible for systemically important institutions," he said. "Second, lacking a framework of resolution authority, policymakers were faced with the option of an unprecedented bankruptcy that may have caused a run on financial markets and institutions."
Rosengren also commented on the massive expansion of the Fed's balance sheet to more than $2 trillion during the financial crisis.
He acknowledged that the expansion of the central bank's balance sheet has led to inflationary concerns, but said that the expanded balance sheet will not be inflationary in the near term because of slack in the labor market, high unemployment, banks' weak capital and weak loan demand.
"While the Fed's aggressive actions and unprecedented policy stance may be a bit unsettling, I think this is a story of effective emergency action that will wind down naturally as the emergency conditions subside," he said.
Concluding his speech, Rosengren said that the Fed, while effectively taking action to lessen the destructive impact of the financial crisis, still made mistakes before the crisis that it must correct in the future.
"Let me acknowledge, without question, that the Federal Reserve, along with other regulators and parts of the government, did not accurately foresee and prevent all the problems that occurred over the past two years," he said. "We were far from perfect, but we are doing our best to learn from mistakes."
He added, however, that the crisis could have been "far worse" had the Fed not taken the actions that it did.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.