The US government will inject $20 billion into troubled banking giant Citigroup and will provide a guarantee of USD 306 billion to the financial firm.
"The US government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital," the Federal Reserve said in a statement.
As per the rescue plan, the treasury would invest USD 20 billion in Citigroup from the Troubled Asset Relief Programme in exchange for preferred stock.
Besides, the Treasury and the Federal Deposit Insurance Corporation (FDIC) would provide protection against USD 306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet, the statement added.
"As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan," the release said.
The move comes close on the heels of the sliding 60 per cent fall in the share price of Citigroup last week.
"Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program," the Federal Reserve added.
The Federal Reserve asserted that "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."
