US banking giant Citigroup is in talks with the Obama government that could lead to its virtual nationalisation.

Citi, described by some analysts as the "walking dead bank", has already received $45 billion (£31 billion) in state aid. The latest move would not involve any more taxpayer money being injected but is aimed at stabilising the bank, which employs 11,000 people in the UK - mainly in Canary Wharf but also at internet bank Egg.

Officials believe the collapse in Citi's share price is spooking customers, who are taking their business elsewhere. All US banks will this week be subjected to stress tests on their balance sheets as part of the Obama bailout.

The Wall Street Journal says the government could end up holding as much as 40% of Citigroup's common stock. But Citi is trying to restrict the stake to 25%. The bank is putting the deal to Washington in the hope of averting another call on taxpayer funds.

Under the deal being considered, much of the $45 billion in preferred shares held by the government would convert into common stock. The government's current shareholding is equal to a 7.8% stake in the bank.

While the deal would not require extra funds from taxpayers, it would considerably dilute current investors' stakes. Citi executives are keen to avoid another direct taxpayer bailout, which would almost certainly cost chief executive Vikram Pandit his job.

Senate Banking Committee chairman Christopher Dodd said on Friday that banks may have to be nationalised for "a short time" to help lenders such as Citigroup and Bank of America survive. That caused a massive sell-off of bank shares on Wall Street, with Citigroup shares closing at an 18-year low.

The White House last week sought to allay fears it was heading towards the nationalisation of banks, saying a "privately held" banking system is the "correct way to go". House Financial Services Committee chairman Barney Frank said nationalisation ought "to be avoided".

Despite the huge cash injections, concerns remain that the biggest US banks could swamped by losses amid the recession and housing crisis, with Citibank executives believing disaster can only be staved off if the government takes a larger stake.