In prepared testimony for delivery to a bailout watchdog panel in Congress on Thursday morning, Pandit said consumer protection should include uniform standards for all market participants and be linked to a safety and soundness regulator.
But Pandit steered clear of an intense debate in Congress over whether a new consumer financial protection regulator should be a stand-alone agency or placed within an existing regulator, such as the Federal Reserve.
Pandit said a number of frameworks could work to strengthen consumer protection as long as the chosen entity has enhanced authority to shield consumers from financial abuses.
A key lesson of the financial crisis is that what starts as an issue that affects consumers can become an issue for the entire financial system. Recent experience reinforces the truism that what is best for consumers is also best for the financial system and the economy, Pandit said in testimony to the Congressional Oversight Panel.
The panel's hearing, led by Harvard Law School professor Elizabeth Warren, will examine issues related to the government's $45 billion bailout of Citigroup, how to dispose of a 27 percent equity stake in the bank, and recent decisions to allow Citi to repay $20 billion in taxpayer funds.
PROPRIETARY TRADING SCALED BACK
Pandit also voiced support for another key Obama administration reform goal -- curbing the ability of banks to trade with their own money -- saying that Citigroup had substantially scaled back its proprietary trading operations.
We have returned to the basics of banking as the core of our business, he said, adding that its compensation practices are focused on long-term performance and do not encourage excessive risk taking.
Pandit, who took over as CEO in December 2007, thanked U.S. taxpayers for bailing out the banking giant during the financial crisis and said the company was back on firm footing and able to contribute to U.S. economic growth.
Today, Citi is operating on a very strong foundation and is positioned to contribute to the economic recovery and generate sustained profitability for the benefit of all our stakeholders, Pandit said.
He said he is looking forward to helping taxpayers realize value on their 27 percent stake in the banking group, but did not offer details on how and when that might occur.
Pandit claimed Citigroup was one of the best capitalized banks in the world, with a Tier One capital ratio of 11.7 percent, with its leverage ratio reduced to 12-to-one from 18-to-one, when he became CEO in December 2007.
Among the lessons learned from the financial crisis, he said, was that the entire financial system can systematically underestimate risk and that an entire system can show hubris.
He said that diversification does not always work because risk exposures are often more concentrated and intertwined than believed. He added that all significant players in financial markets must be regulated.
In general, we allowed ourselves too much leverage -- too many people borrowed too much, he said.
Pandit also said Citi's actions to bolster capital, build reserves and maintain ample liquidity will help mitigate any new risks as it works through the credit cycle.
As we move forward, we believe we have positioned our business to perform as well as possible through the credit cycle and to gain strength as the U.S. and global economies improve. Some credit fundamentals appear to be stabilizing, particularly internationally, he said.
(Reporting by David Lawder and Dan Wilchins; editing by Jeffrey Benkoe)