Government boosts its stake in Citigroup; dividends ended

Earlier this week bank regulators, including the Treasury Department and the Federal Reserve, detailed plans to "stress test " 19 large lenders — those with assets of $100 billion or more — to determine whether they have enough cushion to survive a sharper downturn in the global economy.

At the conclusion of the stress tests, expected by the end of April, regulators will tell the banks how much capital they need and will commit to provide federal aid, by buying preferred shares that could later be converted into common stock. But before that, banks will be given six months to see if they can instead raise capital from private sources.

The Federal Deposit Insurance Corp. also said Thursday that the number of problem U.S. banks has spiked, and voted today to increase premiums it charges to lenders, to replenish its insurance fund. The FDIC, through 2009, will insure 100% of non-interest-bearing accounts, such as those used by small businesses to process payroll. Other accounts are insured up to $250,000.

President Obama has said the government may need more money, above the $700 billion in last year's financial rescue law. The White House budget plan released Thursday included a $250 billion reserve that could support up to $750 billion in new aid — though the administration has not yet decided how much will be needed.

The banking crisis is being felt worldwide. The World Bank Group, European Investment Bank and European Bank for Reconstruction and Development jointly announced Friday that they will provide up to 25.4 billion euros to support Eastern Europe's banking sector.

Investors sent shares of Citigroup plunging on anxiety about the deal. Citi shares fell 42.7%, or $1.05, to $1.50 a share.

Sue Kirchhoff reported from Washington

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