Citigroup today received the government bailout we all knew was coming. The bank had long been tagged as too big to fail and as a result the government package was no surprise. Taxpayers gave Citi:

• $20 billion dollars in additional capital from the TARP.
• The goverment will guarantee approximately $306 billion of Citi assets. Citi must absorb the first $29 billion of losses and 10% of anything beyond that while the Treasuery will absorb the next $5 billion and the FDIC the next $10 billion. The Fed will take anything beyond that.
• Citi will provide the government with $7 billlion of preferred stock that pays an 8% dividend as compensation for the guarantee.
• Citi will also issue warrants to the Treasury and the FDIC for some 254 million common shares at a strike price of $10.61.
• The government has veto power over executive compensation.
• Effective the next dividend period, Citi's dividend was reduced to .01$ per share for the next three years.

The Federal government is now the largest shareholder in Citigroup, owning a 7.8% stake in Citigroup, according to Chief Financial Officer Gary Crittenden.

So, will this be enough?

Citi now has over $70 billion dollars of equity at its disposal. But even that huge amount is relatively small compared to the $2 trillion in assets on and off Citi's balance sheet. And the biggest problem is that Citi has a huge exposure in developing economies. Many of those economies have been hard hit by the banking crisis, are in recession, and could face significant bankruptcies and failures over the next year. Combine that with the domestic US economy that continues to spiral downward, and it's not hard to envision that capital being depleted rather quickly.

At some point, the government will not be able to bail out every industry and we will see more company failures. This will impact the banks that lent to them. Citi was the largest bank in the world with more loans then any other bank so it's hard to see that it won't take additional hits. Many see the commercial real estate marketing weakening and several developers and mall operators have already gone under.

Unless the economy improves or stabilizes over the next couple of months, Citi may find itself in a similar position.

Downey Financial, a $12.8 billion asset bank and PFF Bank & Trust, a $3.7 billion asset bank were both taken over by the FDIC and then quickly given to US Bankcorp. Deposit holders will not lose any money although it is expected that the FDIC will have to spend about $2 billion in the deal. A smaller third bank, Community Bank of Loganville, Georgia, was also closed and its $611.4 million of deposits taken over by Bank of Essex in Tappahannock, Virginia.

These closing represent the 21st, 22nd, and 23rd closings this year. Downey Financial is the second largest closing this year, trailing only the $30 billion failure of Indymac last summer.

As economic conditions deteriorate, we can expect bank failures to accelerate.

From Bloomberg:

“The restructuring or consolidation of the U.S. banking industry has probably just begun,” said Neil Katkov, senior vice president of Celent, a Boston-based financial research firm. “There’s a whole world of potential mergers and acquisitions that will continue to emerge like these one."

He continued: “We’ll probably see more regional and community banks get into trouble."

If the pace of these closings accelerate, the FDIC will deplete the $40 billion it currently has set aside to insure bank failures.

Although it is highly unlikely the government would allow the FDIC to become insolvent, there are several things you can do to protect yourself:

1. Don't just rely on FDIC insurance. Look at a bank's Bauer rating (meaure of its safety and soundness) to determine its health. BestCashCow also provides health and safety information on all banks issuing savings accounts and certificates of deposits.

2. Look at a bank's stock price. The stock price is a forward looking measure of what the market thinks of a bank's stability and future prospects.

3. Make sure your money is FDIC insured. Limits vary depending on whether you have a joint account and POD (Payable Upon Death) beneficiaries. In many cases a joint account can receive $250,000 in coverage per person and an additional $250,000 in coverage for each POD beneificiary.

4. Be conscious of the timeperiod and term of your deposit. The increase to $250,000 FDIC insurance is only in effect until December 31, 2009 at which point it reverts to $100,000. If you open a CD above $100,000 it may be covered now, but the amount in excess of $100,000 won't be on January 1, 2010.

TD Ameritrade has partnered with Suze Orman to offer the Save Yourself money market account. They're offering a $100 if you do the following:

• Open the account before December 31, 2008.
• Deposit 12 monthly consecutive automatic electronic deposits of $100 or more.
• Make the first deposit within 30 days of opening the account.

12 months after you''ve opened the account, TD Waterhouse will review it and see if you met the eligibility. If so, the cash will be deposited into your account within 4 weeks.

The account you open is a money market deposit account, insured by the FDIC. It is paying a 1% APY, so if you open the account, you're doing it for the $100 not for any interest you'll earn. 1% is a very low rate compared to the best savings and money market rates listed on the BestCashCow rate table. If you deposit the minimum of $100 per month for a total of $1,200 and then receive a $100 check, you'll make a return of 8.3%. That's not a bad return but if you don't mind going through all of the work.

Compare TD Ameritrade with other online brokerages here.