NEW YORK ( TheStreet) -- Citigroup ( C) remains "too big to fail" and federal regulators still do not have a comprehensive system in place to prevent another bailout from being needed, according to a report issued today by a government watchdog.

"While the year-plus of Government dependence left Citigroup a stronger institution than it had been, it remained, and arguably still remains, an institution that is too big, too interconnected, and too essential to the global financial system to be allowed to fail," according to a report issued by the Special Inspector General for the U.S. Treasury's Troubled Asset Relief Program (TARP).

According to the report, the U.S. government's success in saving Citi has increased the "moral hazard" around the banking system that will encourage executives to take risks similar to what created the two-year old financial crisis.

"When the Government assured the world in 2008 that it would not let Citigroup fail, it did more than reassure troubled markets -- it encouraged high-risk behavior by insulating risk takers from the consequences of failure," the report says.

Additionally, the report concludes that the U.S. government's mechanisms to save troubled banks are largely unchanged from the "strikingly ad hoc" efforts made in the fall of 2008.

U.S. Treasury Secretary Timothy Geithner all but conceded to that point, arguing it would be difficult to put policies in place that could react quickly to each financial crisis's unique set of circumstances.

"You won't be able to make a judgment about what's systemic and what's not until you know the nature of the shock," Geithner told TARP investigators, as quoted in the report. He added "it depends too much on the state of the world at the time."

In November 2008 Citigroup agreed to U.S. government asset guarantees and a $20 billion capital infusion in exchange for preferred shares of Citigroup stock. The deal was brokered by then Treasury Secretary Henry Paulson and Geithner, who then served as president of the Federal Reserve Bank of New York.

-- Written by Christopher Westfall in New York.

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