The move comes as AIG continues to review its operations and discuss possible options with outside parties, reportedly including Warren Buffett's Berkshire Hathaway Inc., to improve its business amid concern the world's largest insurer could need up to $40 billion to shore up its balance sheet.
Paterson asked New York state insurance regulators to essentially allow AIG to provide a bridge loan to itself. The governor has also asked the head of New York's insurance department to talk with Federal regulators about providing an additional bridge loan to AIG.
"AIG still remains financially sound," Paterson said.
The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, Paterson explained.
AIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets.
Shares of AIG - once the world's most valuable insurer by market value - fell $5.52, or 45 percent, to $6.62 in afternoon trading. They had been down as much as 63 percent to $3.50 before Paterson's comments.
According to news reports, New York-based AIG was seeking $40 billion in emergency funds - possibly from the Federal Reserve - to help the insurer avoid a credit rating downgrade, which would make it more expensive for AIG to raise money. AIG has already raised $20 billion in new capital this year.
Also, the insurer was said to be in "rescue" talks with Buffett.
Berkshire Hathaway spokeswoman Jackie Wilson said Buffett was not available Monday to comment on the AIG-rescue reports. Typically, Berkshire does not comment on any deals before they are completed.
For the three quarters ended in June, AIG lost about $25 billion in the value of credit default swaps - or default protection for bondholders - and about $15 billion on other investments, such as mortgage-backed securities, which are bonds backed by a pool of mortgages.
Those losses over the past year have come amid a sharp increase in defaults among mortgages. As mortgages have increasingly defaulted, investors have worried bonds backed by the troubled loans would also default, driving their prices down. That has forced companies like AIG to slash their value to comply with accounting standards.
As of Friday's close, AIG had a market capitalization of $32.99 billion. AIG generated $33.96 billion in revenue during the first half of 2008, 45 percent less than the $61.8 billion generated during the first half of 2007 - just before the downturn in the credit markets.
AIG's aircraft-leasing arm, International Lease Finance Corp., posted record results in the second quarter. As recently as June, AIG considered shedding ILFC, a company founded in 1973 that has a fleet of more than 900 airplanes valued at more than $50 billion. But newly appointed Willumstad said after reviewing ILFC's business, "ILFC should be a part of the AIG portfolio." ILFC primarily leases aircraft from Boeing and Airbus to major airlines and had net income of more than $200 million in the second quarter.