NEW YORK (Reuters) - New York Gov. David Paterson on Monday said Wall Street might lay off 40,000 workers in a worst-case scenario following Lehman Brother’s bankruptcy filing and problems at other big financial firms.

Paterson, speaking a news conference where he also noted the impact of Bank of America’s surprise agreement to purchase Merrill Lynch and problems threatening insurer American International Group, said the impact of the financial sector’s downturn may not be known for months or even years.

The Democratic governor at the news conference also announced plans to aid American International Group, allowing the insurer access to $20 billion of its own capital, staving off a liquidity crisis.

Paterson, who said he would not put any taxpayer dollars at risk, said his efforts to shore up AIG focused on clearing the way for the New York-regulated company to shift money to its parent company from its insurance subsidiaries. The transaction will serve as a bridge loan.

Paterson blamed the lack of transparency in credit markets for the financial sector’s meltdown, saying many transactions were “beyond the perusal” of regulators.

“We will not expose the taxpayers of this state to any risk or any reorganization where we don’t have the ability to scrupulously understand and research the facts,” he said.

New York’s banks and brokerages generate one of every five tax dollars in the state. The state’s budget is already suffering from declines on Wall Street, and Paterson last month had said that tax revenues would be hurt by declines in Wall Street bonuses.

Slideshow ( 2 images )

Paterson, who got lawmakers to cut the state’s budget by more than $400 million in August in an emergency session, on Monday said he might have to recall lawmakers again, saying he would not be surprised if the deficit spiraled back up.

In addition to job cuts on Wall Street, Paterson as many as 120,000 jobs might be cut if positions in service industries that rely on Wall Street are included.

Bankers, brokers and traders earned an average salary and bonus of $340,312 a year in 2006, according to James Brown, a labor market analyst with the state Labor Department.

AIG employs 8,500 people in the state, including 6,000 who work in the city, Paterson said. Merrill Lynch has around 60,000 employees around worldwide, while Lehman Brothers has about 26,000 workers.

Wall Street’s job force totaled 181,000 in July, which was down 11,000 from July 2007, Brown said. Employment on Wall Street peaked at 200,300 in December 2000.

Financial sector jobs help create as many as four other positions in services ranging from legal to sales, according to Ross DeVol, director of regional economics, for the Santa Monica, California-based Milken Institute.

The total amount of compensation Wall Street pays is equal to almost 35 percent of all salaries and wages earned in the city, according to city officials.