by Calculated Risk on 11/23/2008 05:32:00 PM

UPDATE2: CNBC reports: Government Now Said To Have Cold Feet

From the WSJ: Citigroup, U.S. in Talks to Create 'Bad Bank'

Citigroup Inc. is nearing agreement with U.S. government officials to create a structure that would house some of the financial giant's risky assets ...

... talks were progressing Sunday toward creation of what would essentially be a "bad bank." ... The bad bank also might absorb assets from Citigroup's off-balance-sheet entities, which hold $1.23 trillion. ...

Under the terms being discussed, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold. ... After weekend discussions between Citigroup executives and officials at the Federal Reserve and Treasury Department, the parties are hoping to unveil an agreement Sunday evening, the people said.

The announcement is expected tonight.

Hey, I thought Citi WAS the bad bank!

UPDATE: Here is a story from Bloomberg: Citigroup, Fed Said to Weigh Plan to Limit Losses on Bad Assets

And from the NY Times: Plan Begins to Emerge to Rescue Citigroup

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, ...

If the government should have to take on the bigger losses, it would receive a stake in Citigroup.