AIG exploited regulatory 'gap'- Bernanke

Federal Reserve chairman Ben Bernanke said insurance giant AIG brought itself to the brink of collapse by operating like a "hedge fund" that skirted the jurisdiction of regulators.

In an unusually harsh rebuke, Bernanke told a Senate hearing that "if there's a single episode in this entire 18 months (of the financial crisis) that has made me more angry, I can't think of one than AIG."

"I think AIG exploited a huge gap in the regulatory system," Bernanke said.

"There was no oversight of the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company, made huge numbers of irresponsible bets, took huge losses. There was no regulatory oversight because there was a gap in the system."

Bernanke's comments came a day after the US government unveiled a fresh rescue plan worth 30 billion dollars to help AIG stave off collapse as the ailing insurer revealed the biggest loss in American corporate history.

The revamped bailout came as American International Group announced a quarterly loss of 61.7 billion dollars - the biggest ever for a US firm in one quarter - pushing up its net loss for 2008 to 99.3 billion dollars.

The government, which had already pumped some 150 billion dollars into AIG, said the restructured aid package sought to avert a potentially catastrophic collapse of what had been the world's biggest insurer.

Bernanke told MPs however that saving AIG was preferable to letting it fail.

"We know that the failure of major financial firms in a financial crisis can be disastrous for the economy. We really had no choice," he told the Senate Budget Committee when questioned by Senator Ron Wyden.

"And I share your concern, I share your anger. It's a terrible situation, but we're not doing this to bail out AIG or their shareholders, certainly. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."