The Treasury Department outlined a new insurance plan Friday to guarantee assets held by systemically important institutions — one that it could use to help Citigroup Inc.
The Treasury said it is exploring the idea of using the Asset Guarantee Program to insure an institution's illiquid assets. The department said that it does not expect to make the program widely available, but that its guarantee of $5 billion of Citi's assets might fit the program.
Under the program, the Treasury would collect a premium and assume a loss position on certain assets for systemically significant institutions. The decision to guarantee assets would be made on a case-by-case basis.
In determining eligibility, the Treasury said it would consider factors such as whether an institution's destabilization would threaten the viability of its creditors, the risk of loss of confidence from distressed assets, the number of institutions in a similar situation, the institution's importance to the economic system, and the intuition's access to alternative sources of capital.
The Oct. 3 law that created the Troubled Asset Relief Program required the Treasury to report within 90 days of enactment whether an asset guarantee program was feasible.
In late November the Treasury announced that it would support Citi by providing it $20 billion of additional capital, which the New York company received Dec. 31. The department also said it would backstop $5 billion of certain Citi assets.