The US Federal Reserve announced that it would lend AIG up to $85bn in emergency funds in return for a government stake of 79.9 per cent and effective control of the company – an extraordinary step meant to stave off a collapse of the giant insurer that plays a crucial role in the global financial system.

Under the plan, the latest dramatic intervention by the US government to combat the global credit crisis, the existing management of the company will be replaced and new executives - as yet unnamed - will be appointed. Reports on Wednesday suggested Edward Liddy, the former Allstate chief executive, will replace Robert Willumstad, the chairman bought in to replace ousted chief executive Martin Sullivan last year.