To help the American International Group (AIG) wade through a continuing liquidity crisis, the Federal Reserve Board would provide up to an additional $37.8 billion to the insurance giant. The bank will receive investment-grade, fixed-income securities in return.

The Fed’s new program is an emergency mechanism allowed under the Federal Reserve Act that required evidence that AIG was “unable to secure adequate credit accommodations from other banking institutions.” The group had borrowed $85 billion last month, when the financial crisis was unfolding. In fact, the bailout of AIG was the most radical intervention ever by the central bank in a public company.

The additional funds were announced after two former executives of AIG - Martin Sullivan and Robert Willumstad - answered critical questions from lawmakers about business, pay practices and outsize spending after the initial lifeline from the government. One particular point of contention during the hearing was a weeklong retreat that a life insurance subsidiary, AIG General, held for its top sales agents at the St. Regis Resort in Monarch Beach, California.

AIG’s director of public relations, Joe Norton, said that the event had been scheduled last year, and he did not know whether executives had considered canceling the retreat after the bailout.

However, it was not made clear why AIG needed the additional funds. Last week, AIG said it has drawn down $61 billion of the earlier loan and planned to sell off some of its business units to pay off the loan. There are indications that the new loan amount will be used to settle existing transactions related to its securities lending business. Under that program, the company lent out securities to investors and others receiving both the value of such securities and a fee in return. It then took the funds and placed them in other investments like mortgage-backed securities.

With the value of mortgage-backed securities plummeting of late, AIG does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide AIG with cash to meet its obligations.