h more than$2 trillion in total assets, Citigroup is one of the largest and most
ID: 1195604 • Letter: H
Question
h more than$2 trillion in total assets, Citigroup is one of the largest and most global banks in the world. It has more than 200 million customers in more than 100 countries and offers a vast array of financial services. While Citigroup has been a highly profitable and successful bank, in 2008 massive losses on securities related to home loans and other asset-backed securities caused negative profits and damage to its capital that threatened bank’s solvency. The U.S. government injected more than $40 billion of new capital in an effort to prevent the bank’s failure. The government also provided guarantees on more than $300 billion of risky loans made by Citicorp.
What are some arguments in favor of continuing government support of Citigroup? Discuss who would be hurt by the bank’s failure. Is the failure of Citigroup different from that of other firms? Does the government have people to manage such a global finance enterprise?
Explanation / Answer
The government is supporting Citigroup since it is one of the largest banks in the world with a lot of money invested in the US. With the bank's losses, incomes and financial situation of the US residents will fall drastically, which will only lead to a severe recession. So, in order to prevent the economy from falling into the deep trap, which will only make it difficult for the Fed to help it out, it is beneficial for the government only to provide help to the bank. This help is indirectly for its residents only.
US citizens, US economy and thus Fed will be hurt by the bank's failure, as it will only lead to economy falling into recession.
Yes, the failure of Citigroup is different from that of other firms, because of the large amount of money invested in the bank of the country's citizens, failure of which will directly affect the citizens and the economy.
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