WASHINGTON — In agreeing to become the biggest owner of Citigroup Inc.'s common stock, the government is moving as close as it has come in 25 years to nationalizing a major bank, demonstrating how far federal officials will go to address the financial crisis.

"I think it underlines what they've already been saying," said Douglas Elliott, an economics fellow at the Brookings Institution and a former investment banker. "One, they're going to make sure these banks are not going to go under. And two, they really want to avoid nationalization."

Still, the federal government is likely to have a direct ownership stake of 36 percent in one of the country's largest banks after converting as much as $25 billion from its $50 billion in Citigroup preferred stock into common shares.

Under the deal, the federal government would provide no additional money to Citigroup. But the stock conversion would improve the company's balance sheet, helping the bank weather the recession and cope with the billions of dollars in toxic assets on its books.

"In the end our business is about confidence," Chief Executive Vikram Pandit, who Citigroup said would keep his job, told analysts and investors yesterday. "We wanted to take definitive steps to put all capital issues aside."

Although Pandit is keeping his job, Citigroup told the government it would overhaul its board of directors.

The CEO dismissed suggestions that the higher U.S. stake meant the bank is essentially nationalized.

"We completely remain in charge of the day-to-day operations of the company, and none of that changes," he said. "We're going to run Citi for the shareholders."

Those existing shareholders, whose stake would be slashed to as little as 26 percent under the deal, delivered a vote of no-confidence in it, pushing the company's stock price down 96 cents to $1.50.

The 1.8 billion shares traded yesterday set a New York Stock Exchange record, topping a mark set by WorldCom Inc. in 2002 during its accounting scandal.

The government now would have a large, long-term stake in a major bank for the first time since the U.S. took control of failed Continental Illinois bank in 1984, Elliott said. It took seven years for the government to get rid of its 80 percent stake in that bank, which was much smaller than Citigroup, he said.