Another bank bailout by the Feds

Federal officials on Sunday announced yet another bank bailout for one of the nation’s biggest financial institution, Citigroup, Inc. The government has allotted $20 billion in financial support to prevent what would have been a nationally devastating failure of the bank, whose stocks dropped drastically last week.

In a joint statement issued by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp, federal officials said the assistance to Citigroup is allowing the U.S. Government to take actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

The statement continued, “We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

Citigroup's the latest financial institution to be deemed too big to fail, which it probably true as such a failure would not only have a serious impact on the national economy but, since Citigroup banks internationally, on the global economy as well.

As part of the latest bailout plan the U.S. Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup.

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