The Federal Reserve is preparing to lend American International Group (AIG) a further $37.8 billion just three weeks after the ailing insurance giant received an $85 billion US government loan to prevent it going bankrupt.

The Fed board used emergency powers to authorise the New York Fed to borrow from AIG nearly up to $38 billion in investment-grade bonds in return for cash collateral, which the insurer can use to “replenish liquidity”.

Although Edward Liddy, who was installed as chief executive to run the firm following the first government injection on September 16, had said that loan would be enough, AIG is running short of cash as other lenders have been pulling out of similar transactions with the group.

The government will receive a 79.9 per cent stake in AIG in return for its first loan. It is not known whether the second loan will increase its holding.

The move comes after AIG said last week that it has already drawn down $61 billion of an $85 billion line of credit provided by the Federal Reserve to keep the insurer afloat.

AIG is in the process of selling at least ten businesses as it looks to raise money to pay off its debts and to slim down operations dramatically, with the aim of returning to profit.

Units on the block include International Lease Finance aircraft leasing unit; American General Finance, the consumer lender; and its life insurance and pension operations in America, Europe, Latin America and Japan. It might also sell its US car insurance unit. The group is to focus on its core property and casualty business, its foreign general insurance operations and its foreign life insurance unit.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax