The Federal Reserve released the statement regarding the Citigroup intervention.  Notice the guidelines by which the Fed states they will preserve the strength of our banking system and promote recovery.  Joint Statement by Treasury, Federal Reserve, and the FIDC on Citigroup.

The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

• We will work to support a healthy resumption of credit flows to households and businesses.
• We will exercise prudent stewardship of taxpayer resources.
• We will carefully circumscribe the involvement of government in the financial sector.
• We will bolster the efforts of financial institutions to attract private capital.

Click here to view the Term Sheet

Today Federal Reserve Chairman Ben Bernanke share with Congress his concerns for the economy that continues to see a slow down.  Despite the recent movements by the Bush Administration and the global efforts of the world’s central banks, the US Economy is still continuing retract.   The financial and credit markets continue to show daily uncertainty.

The Federal Reserve has left the door open for another rate cut during its meeting on October 28-29.  Bernanke believes stimulus provided by monetary policy along with stabilization of the housing and credit markets will help the economy set a strong foundation.

Bernanke proposed an additional stimulus package that could total anywhere from $150-300 Billion.

“If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers,” Bernanke said. “Such actions might be particularly effective at promoting economic growth and job creation,” he added.

Passage of an additional sitmulus package prior to election seems unlikely, however, the direction of the economy will deterimine how Congress will act.