New York  - The US government and Citigroup Inc have cut a deal on the government substantially increasing its stake in the ailing bank, the Treasury announced Friday.

Under the agreement, the government will own as much as 36 per cent of the bank's shares in exchange for better access to Treasury funds, which could help Citigroup avoid bankruptcy.

The part-nationalization of what was once the world's largest bank has fuelled speculation that more financial institutions could face a similar government takeover.

The Treasury will convert up to 25 billion dollars of already- owned preferred stock into common shares in order to effect the move, on the condition that private investors match the Treasury's commitment.

The government currently holds an 8-per-cent stake in the company. The new move involves only a conversion of shares, not an increase in the Treasury's existing
45-billion-dollar investment in the company.

The Treasury is also demanding changes in the bank's executive board, bringing in new "independent" directors. There was no word on whether chief executive Vikram Pandit will keep his job.

Citigroup has reported a 27.7-billion-dollar loss for 2008 due to massive writedowns related to the US housing market collapse.

The International Monetary Fund predicts financial institutions will lose more than 2 trillion dollars in connection to mortgage- related assets before the crisis is over.

It marks the third time since October that Washington has come to Citigroup's rescue. Citigroup's share price fell as much as 37 per cent Friday morning. (dpa)