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Report says UK rules took Citi to brink

A REPORT into the US bank bailouts has raised questions about whether the Financial Services Authority (FSA) pushed Citigroup towards the brink in November 2008 in a bid to protect UK interests from another Lehman Brothers-type collapse.<br /><br />A footnote to a report by the Congressional Oversight Panel (COP) claims that the FSA ratcheted up liquidity restrictions on Citi a year ago when the group&rsquo;s shares were in freefall and there were fears it could go to the wall. <br /><br />It appears the FSA was worried about a repeat of Lehman Brothers when the London entity was drained of all cash in favour of the New York office just before the investment bank went under.<br /><br />Two months later, amid similar concern over Citi, the FSA demanded Citi keep $6.4bn (&pound;3.8bn) in a &ldquo;cash lockup&rdquo;, according to the COP report that cited members of the Federal Deposit Insurance Corporation.<br /><br />Commenting on events on November 21, 2008, the report said: &ldquo;Market acceptance of the firm&rsquo;s liabilities diminished, as the company&rsquo;s stock plunged to a 16-year low, credit default swap spreads widened by 75 basis points to 512.5 basis points, multiple counterparties advised that they would require greater collateralisation... and the UK FSA imposed a $6.4bn cash lockup requirement to protect the interests of the UK broker dealer.&rdquo;<br /><br />A spokeswoman for the FSA declined to comment. Since the collapse of Lehmans, the FSA has come up with tough new liquidity restrictions that are due to be implemented on 1 December. <br /><br />A separate footnote to the report shows that Citigroup management did not believe that the bank was headed for collapse while authorities were worried the bank would go under.