Citi CEO: We must invest in safety and soundness
Safety, soundness and deleveraging will return the world's financial markets to the basics of banking, according to Citigroup (C) Chief Executive Vikram Pandit. Pandit was interviewed Monday at the SIFMA conference by veteran broadcaster Charlie Rose, who asked Pandit if the concept of "too big to fail" still exists. "In order to get to safety and soundness, you can't only say 'I'm going to look at these institutions.' You need to have a level playing field — you've got to look at everything that happened." The Citi CEO mentioned the recent bankruptcy of MF Global as an example of not being safe and sound. "We still have to work through what all of that looks like, but there are going to be events of that sort. So to me, the question is more about what does it take to create safety and soundness in the financial system," Pandit said. Rose then asked Pandit if the sweeping financial reforms included in the Dodd-Frank Act achieve that. "I think Dodd-Frank does a lot of things that are important," Pandit said. "I personally believe that we, as a firm, are very much there. The focus on the consumer is exactly right." Pandit cited numerous studies that he said suggest consumers do not behave like free market capitalist Adam Smith. "And if that is that case, you can't say, 'buyer beware.' You need to have these sets of rules and regulations that are not so much about protecting that consumer from himself or herself, but about protecting the system. Different countries have taken a different path on that — whether you go to Singapore or Southeast Asia, or certain parts of Europe. There are very different approaches to getting at this question that the propensity of the consumer is to over-leverage themselves." Pandit said bank regulations may be needed to protect consumers from themselves as well as to protect the overall financial system. "They are to protect the system, as well. Those are the kinds of things that I think Dodd-Frank foreshadows. Those are some of the good things. And there are some things that are not good," he said. Pandit gave swap pushouts as an example of a bad part of Dodd-Frank. The rule will require banking institutions to "pushout" portions of their swaps business into a separately capitalized affiliates. The rule would generally prohibit "swaps entities" from receiving federal assistance, including Federal Deposit Insurance Corp. insurance and certain Federal Reserve lending programs. "For the life of me, I can't figure out why that makes any sense for anybody except for lawyers," Pandit said. "I'm probably not going to be popular for saying this, but I think almost all derivatives — as many as you can physically get to — should be on clearinghouses and on exchanges. And thank God for that with MFGlobal as an example." Write to Justin T. Hilley. Follow him on Twitter @JustinHilley.