Update includes information on a published report that CIT Group and the federal government are in "advanced talks" on an aid package; updates share price throughout.

CIT Group

(CIT) - Get Report

and federal regulators were in "advanced talks" about a government aid package late Monday, according to published reports.

On possible source of aid for the troubled commercial lender is participating in the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program,

The Wall Street Journal

reported. CIT shares fell 18 cents to $1.35 at Monday's close after the company on late Sunday confirmed it had engaged a law firm to explore a bankruptcy filing if it is unable to secure a solution to its liquidity crisis.

CIT said in a statement late Sunday that it is in talks for the near-term transfer of assets into CIT Bank through certain waivers and the transfer of its vendor finance and trade finance businesses into CIT Bank.

If approved, these transfers would enhance CIT's liquidity position, the company said.

"There can be no assurance that any of CIT's discussions with the government will result in any regulatory action nor as to the timing or terms of any such approvals," the company said.

CIT, a financier to small and mid-sized businesses, is facing a liquidity crisis absent help from the government, according to analysts.

CIT confirmed over the weekend it had engaged engaged Skadden, Arps, Slate, Meagher & Flom LLP, which has a prominent bankruptcy practice, as the company awaits word on whether it will receive funds from the TLGP. The program allows cash-squeezed companies to issue government-backed bonds to raise capital at a lower cost.

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