WASHINGTON (MarketWatch) -- The Federal Reserve announced Wednesday it was lending billions of additional funds to cash-strapped American International Group Inc.

Under the program, the New York Federal Reserve Bank will provide $37.8 billion in additional cash to certain domestic life insurance subsidiaries of AIG AIG, -1.23% in return for investment-grade, fixed-income securities.

AIG already has an $85 billion line of credit with the Fed. As of last week, AIG had used $60 billion of this loan, according to Fed data.

This new program will allow AIG to replenish liquidity, the Fed said. At the same time, the securities will provide enhanced protection to U.S. taxpayers, the central bank said.

In a separate statement, AIG said the New York Fed is prepared to borrow securities to extend AIG's currently outstanding lending obligations where those obligations are not rolled over or replaced by transactions with other private market participants.

The arrangement will help AIG secure funds on an as-needed basis, the company said.

AIG recently put many of its businesses up for sale to try to repay the government loan.

The insurer, which had to be saved from bankruptcy last month by a Fed, said it wants to keep its main property and casualty insurance businesses in the U.S. and abroad.

AIG came under fire in Washington this week as members of Congress, the White House and Democratic presidential candidate Barack Obama said the firm should not have spent $200,000 on an expensive retreat at a luxury hotel after receiving the government bailout. AIG said the event was for independent life insurance agents, not for AIG executives.