The US Treasury Department says it will convert some of the preferred shares it holds in struggling Citigroup into ordinary shares, known as common stock. The step will give the US government a significant stake in the bank.
Treasury said it would convert the shares to the same extent that other private holders of preferred shares agree to do the same.
It said that up to $25 billion of preferred shares that the US government holds will be converted to common stock. Citigroup said that meant the US government could come to own as much as 36% of its common stock.
The US government currently holds about $45 billion of Citigroup's preferred stock purchased through two separate capital injections last year. The share conversion does not involve pumping more government cash into the bank.
Treasury said that Citigroup was replacing the majority of its board of directors as soon as possible, but chief executive Vikram Pandit is keeping his job.
Citigroup will still be taking part in so-called 'stress tests' for the country's biggest banks - those with assets of $100 billion or more - which will determine their ability to withstand future losses.
