Citigroup will pay $4 billion to the Department of Justice and $2.5 billion for “consumer relief”.
Consumer relief includes investment in affordable homes and mortgage relief.
Following the decision, the bank reported a stronger than predicted quarterly profit, and saw its share price rise by 3.62% to $48.70.
Second-quarter earnings fell by 96% to $181 million, but that was after a $3.8 billion charge related to the settlement.
The settlement stems from the sale of securities made up of sub-prime mortgages, which were at the centre of the 2008 financial crisis.
Citigroup is the second major bank to pay a settlement since President Barack Obama launched an investigation into housing loans.
JPMorgan Chase paid $13 billion last year to settle government investigations.
The Citigroup fines are said to have surprised stock analysts and people inside the bank, who had hoped to settle for less.
According to the US Attorney General Eric Holder, “under the terms of this settlement, the bank has admitted to its misdeeds in great detail”.
Eric Holder said the settlement “does not absolve Citigroup or its employees from facing any possible criminal charges in the future”.
Citigroup’s chief executive, Michael L. Corbat, said that the decision was the right one for shareholders.
“We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past,” he said.
Investors welcomed the decision, as Citigroup’s share price rose in New York trading.
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