Greenberg says AIG needs federal guaranty: report

(Reuters) - The U.S. government should provide a federal guaranty to meet American International Group Inc's (AIG.N) counterparty collateral requirements, the insurer's former Chief Executive Maurice Greenberg said.

Collateral requirements have consumed the vast majority of the government funds channeled to AIG to date, Greenberg said an opinion piece in the Wall Street Journal.

A guaranty would allow a large portion of the previously drawn capital from the federal credit facility to be repaid and redeployed elsewhere in the financial system with no loss to the American taxpayer, he said.

Federal government is providing this type of guaranty to Citigroup (C.N) and should apply the same principle to AIG, he said.

The government rescued Citigroup by agreeing to shoulder most losses on about $306 billion of the bank's risky assets and inject new capital.

Last month the government reduced a previously announced credit line for AIG to $60 billion from $85 billion, and lowered interest rates on borrowings.

But interest payments are still eating up too much of AIG's capital, forcing the company into "effective liquidation," making jobs impossible to keep and decreasing the likelihood taxpayers will be repaid, Greenberg wrote.

(Reporting by Sakthi Prasad in Bangalore; editing by John Stonestreet)