Bank of America will receive $20bn (£13.4bn) in fresh US government aid and $118bn worth of guarantees against bad assets.
The emergency funding will help the troubled bank - the US's largest - absorb the losses it incurred when it bought Merrill Lynch.
In return for the money, the US Treasury will take a stake in the bank.
Just hours after the aid package was announced, Merrill Lynch posted a fourth-quarter 2008 loss of $15.31bn.
Bank of America reported a loss of $1.7bn, compared with a profit of $268m for the same period a year earlier.
Bank of America had been seen as one of the strongest US banks, at least until its decision to take over Merrill.
"They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal," said Cassandra Toroian at Bell Rock Capital.
Financial stability
The government stepped in after fears that the deteriorating capital base threatened the viability of the bank and could have posed a threat to the financial sector and the wider economy.
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