Neil Barofsky, the U.S. special inspector general for the Troubled Asset Relief Program (TARP) plans to audit a federal guarantee granted last year to protect Citigroup Inc. (C) from potentially massive losses.

The U.S. special inspector general is in charge of keeping a check on bank bailouts and will convene a team to audit the Citigroup guarantees. The appointed team will examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses.

The Federal Reserve, the Treasury and Federal Deposit Insurance Corporation (FDIC) in November 2008 guaranteed a $306 billion pool of Citigroup mortgage assets aiming at preventing the collapse of the U.S. banking system amidst a global financial crisis. Citigroup’s guarantees came on top of $45 billion of bailout funds obtained last year through TARP.

The audit is a result of the questions raised by U.S. Representative Alan Grayson about the guarantee and what it meant for taxpayers, and whether taxpayers got a fair deal. The government bailout did help calm the crisis, but it also sparked public anger over the use of taxpayer money to save rich bankers.

The audit will take several months and a deadline hasn’t been set as of yet.
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