NU Online News Service, July 26, 2:15 p.m.EDT

American International Group is in need of "effective,comprehensive and rigorous" regulation to ensure history does notrepeat itself at the insurance giant, says a new regulatoryreport.

The report, released by the Special Inspector General for theTroubled Asset Relief Program (SIGTARP), also indicates thatdespite the federal government's ownership stake and assistance tothe insurer, there is currently no designated federal regulator ofAIG, a finding that drew indignation from Rep. Spencer Bachus,R-Ala. during a recent hearing.

"Two years after passage of Dodd-Frank, how it is possible thatthere is no regulator for the biggest TARP recipient of all?"Bachus asked Treasury Secretary Timothy Geithner at a HouseFinancial Services Committee hearing on the operations of theFinancial Stability Oversight Council.

He also called for an "exit strategy" for government involvementin AIG. "Today, AIG owes taxpayers $36 billion and taxpayers own 61percent of the company," Bachus said. "It is imperative forTreasury to map out an exit strategy from AIG's bailout in order toprotect taxpayers."

While the SIGTARP report says there is currently no designatedfederal regulator for AIG, and adds that it remains unclear how thegovernment will oversee AIG in the future, it does note that thereare two avenues for federal regulation going forward.

The options include oversight of AIG's non-insurance unitsthrough the Fed's authority to regulate thrift-holding companies,and the possible designation of AIG as a systemically importantfinancial institution (SIFI).

If the Financial Stability Oversight Council designates AIG as anonbank SIFI, AIG would be subject to Federal Reserve examination,enforcement, and supervision, the report notes, adding that AIG'ssenior management expects and has begun preparing for such adesignation.

But the report points out the challenges the government faces,stating, "Regulatory oversight of AIG will be an enormousundertaking, presenting challenges in examination, enforcement, andsupervision, particularly as it relates to risk, given AIG'shistory."

The report also gives an update on AIG's Financial Productsunit. The activities at AIGFP, including selling credit defaultswaps on $2.77 trillion notional amount of CDS is widely attributedas the reason the company needed government aid to stay alive.

The SIGTARP report says AIG has sharply reduced its CDSportfolio to one-tenth its former size, from about $2 trillion innet notional value in 2008 to about $168 billion in net notionalvalue at the end of 2012's first quarter.