- Herbert M. Allison, Assistant Treasury Secretary for Financial Stability
- Vikram Pandit, Chief Executive Officer, Citigroup
In her opening statement, Chairwoman Elizabeth Warren began by summarizing Citigroup’s need for government assistance during the Great Depression, 1980s and the current financial crisis. Chairwoman Warren argued that “the sheer magnitude of Citigroup’s operations, and the company’s history of receiving extraordinary government support … led the Panel to an inescapable conclusion: Citigroup … enjoys an implicit government guarantee. The United States government will bear any burden and pay any price to ensure that Citigroup does not fail.” Chairwoman Warren identified several issues to be addressed during the hearing: (1) the consequences, both to taxpayers and Citigroup’s business, of the implicit government guarantee; (2) Citigroup’s use of tax dollars received over the course of the financial crisis; and (3) the U.S. Treasury’s and Citigroup’s strategies for ensuring that taxpayers will not be asked to fund another bailout for the institution.
COP member Damon Silvers noted his continued concern about the vulnerability of Citigroup’s balance sheet and the “continuing pressures on Citigroup to repeat the events of the bubble cycle by weakening its capital structure in the pursuit of unsustainable returns on equity.” Like Chairwoman Warren, Mr. Silvers identified several issues to focus the hearing on, including (1) the aspects of Citigroup’s business model that made the company particularly vulnerable to the financial crisis; (2) the proper strategy for the Treasury in relation to its role as Citigroup’s largest shareholder; and (3) the steps the Treasury should take to ensure that Citigroup is treated fairly in the context of how other banks are treated under TARP and other government programs.
Mr. Allison began his testimony by discussing the Treasury’s reasons for making investments in Citigroup. He noted that, in September 2008, strong and unprecedented action was necessary to avoid a collapse of the financial system. Under the Emergency Economic Stabilization Act of 2008, the Treasury invested a total of $45 billion in Citigroup. Although the Treasury was criticized for its actions, Mr. Allison noted that Citigroup has repaid the $20 billion in exceptional assistance provided under the Targeted Investment Program, and the taxpayers have earned a positive return on that investment. He noted that “there was no loss to the government and there has been a positive return to the taxpayer from the asset guarantee.” He indicated that Treasury intended to dispose of its remaining investment in Citigroup over the coming year.
However, Mr. Allison noted that “the U.S. government is a shareholder [in Citigroup] reluctantly and out of necessity. The TARP investments were not made to make money but to help avert a collapse of our financial system.” He identified several proposed comprehensive financial reforms that, if enacted, would force “institutions to internalize the risks they impose on our financial system and to remove expectations of government support”:
- Limit risk-takings by institutions that threaten the overall stability of the system and cause extraordinary damage to the American economy. Major financial firms would be required to regularly report to supervisors the nature and extent to which other financial firms are exposed to risk to allow the government to identify firms whose failure could pose a threat to overall financial stability and the economy; and
- Provide the government the ability to seize and wind down failing major financial institutions in an orderly manner to minimize the company’s risk to the financial system, economy and taxpayers.
The Panel pressed Mr. Allison regarding the role of Treasury in monitoring Citigroup’s overall economic health and in supervising its financial operations. Mr. Allison noted that the Treasury was not interfering in the day-to-day operations of the company, though he did acknowledge that Citigroup did provide regular updates on the company’s situation. Referencing the government’s ownership interest in Citigroup, he repeatedly refused to comment on Treasury’s assessment of the company’s financial health. He also repeatedly refused to comment on the reasons for Citigroup’s rescue, since those decisions were made by the Bush administration. He did say, however, that there was no reason to expect that Treasury would, and that Treasury had no plans to, further invest in Citigroup.
Mr. Pandit stated at the outset that Citigroup is fundamentally different from the company he inherited when he became chief executive officer two years ago. He asserted that, as a result of the government’s response to the financial crisis, Citigroup is now operating on a “strong foundation and is positioned to contribute to the economic recovery and generate sustained profitability” for its stakeholders. He noted that the company is currently “well capitalized” and would pass the government-ordered stress tests if they were run today. He also noted that Citigroup is now a smaller institution that is “focused on being a bank – not a financial supermarket” and identified several actions by Citigroup to strengthen its capital position, build reserves and maintain ample liquidity, including “rebuilding its senior management team,” strengthening risk management and returning to the “basics of banking.”
Mr. Pandit also stressed the transparency that Citigroup provided about its use of TARP capital to support lending initiatives. According to Mr. Pandit, “taxpayers have a right to know how their investment was put to use, and [Citigroup was] the only bank to publish regular reports on the use of TARP money.”
Mr. Pandit repeatedly thanked U.S. taxpayers for the assistance during the financial crisis. According to Mr. Pandit, Citigroup “owes a large debt of gratitude to American taxpayers.” Echoing Mr. Allison’s testimony, Mr. Pandit stated that the bank had no plans to request more government assistance.
Mr. Pandit said that Citigroup supported “prudent and effective reform” of the financial regulatory system, specifically embracing some of the Obama Administration’s regulatory overhaul proposals. With respect to consumer financial protection, he endorsed the creation of a new agency with a dedicated consumer financial protection mission, but did not advocate any particular regulatory structure, stating only that “a number of frameworks could work to strengthen consumer protection” but that any agency should have “enhanced authority” to protect consumers. He also endorsed the so-called “Volcker rule,” which would impose new limits on banks' ability to engage in proprietary trading.