How will Citigroup changes affect you and the economy?

— -- Here's a look at how the deal will affect consumers, the banking industry and the economy.

Q: How does the deal work?

A: The government will exchange as much as $25 billion of its preferred Citigroup shares for common stock, matching share conversions by other investors. Currently, the government holds $45 billion of preferred shares and has a loss-sharing agreement on $301 billion of troubled Citigroup assets.

Preferred-stock holders, including the Government of Singapore Investment Corp., Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors and Capital World Investors, have agreed to convert their shares. But the government's ultimate stake in Citigroup also depends on whether other shareholders do the same.

The conversion boosts a key measure of Citigroup's financial health that is getting more attention from investors and regulators. But Citi's existing common shareholders could see their ownership reduced to 26%. Current preferred shareholders would own up to 38%.

The transaction requires no additional government investment, but as the government's stake rises, so does the risk to taxpayers. Taxpayers also have the potential to profit if Citigroup rebounds. Citi is also suspending dividends on both its common stock and preferred shares, saving several billion dollars a year.

Q: Why the focus on common shares?

A: Common shares are a conservative way to measure how much capital a company has on hand to cover losses. Investors and regulators are paying particular attention to "tangible common equity," or TCE, which basically measures how much common shareholders would get if the institution were liquidated.

Until now, regulators measured banks' financial health mainly by its so-called Tier 1 capital level. Tier 1 capital includes common equity, but also preferred equity and retained earnings.