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S. HRG. 111–472

CITIGROUP AND THE TROUBLED ASSET RELIEF
PROGRAM

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION

MARCH 4, 2010

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CITIGROUP AND THE TROUBLED ASSET RELIEF PROGRAM

S. HRG. 111–472

CITIGROUP AND THE TROUBLED ASSET RELIEF
PROGRAM

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION

MARCH 4, 2010

Printed for the use of the Congressional Oversight Panel

(

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WASHINGTON

56–805

:

2010

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For sale by the Superintendent of Documents, U.S. Government Printing Office
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CONGRESSIONAL OVERSIGHT PANEL
PANEL MEMBERS
ELIZABETH WARREN, Chair
PAUL ATKINS
J. MARK MCWATTERS
RICHARD H. NEIMAN

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DAMON SILVERS

(II)

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CONTENTS
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Statement of:
Opening Statement of Elizabeth Warren, Chair, Congressional Oversight
Panel ..............................................................................................................
Statement of J. Mark McWatters, Member, Congressional Oversight
Panel Public ...................................................................................................
Statement of Damon Silvers, Member, Congressional Oversight Panel ......
Statement of Paul Atkins, Member, Congressional Oversight Panel ..........
Statement of Richard Neiman, Member, Congressional Oversight Panel ...
Statement of Herbert M. Allison, Jr., Assistant Secretary for Financial
Stability, U.S. Department of the Treasury ...............................................
Statement of Vikram Pandit, Chief Executive Officer, Citigroup, Inc. ........

(III)

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CITIGROUP AND THE TROUBLED ASSET
RELIEF PROGRAM
THURSDAY, MARCH 4, 2010

U.S. CONGRESS,
CONGRESSIONAL OVERSIGHT PANEL,
Washington, DC.
The Panel met, pursuant to notice, at 10:03 a.m. in Room SD–
538, Dirksen Senate Office Building, Elizabeth Warren, Chair of
the Panel, presiding.
Present: Elizabeth Warren [presiding], Richard Neiman, Paul S.
Atkins, Damon Silvers, and J. Mark McWatters.
OPENING STATEMENT OF ELIZABETH WARREN, CHAIR,
CONGRESSIONAL OVERSIGHT PANEL

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Chair WARREN. The March 4 hearing of the Congressional Oversight Panel will come to order. Good morning, I am Elizabeth Warren and I am the chair of the Congressional Oversight Panel.
As everyone in this room knows, in late 2008 a financial crisis
threatened to bring the worldwide economy to its knees. Citigroup’s
special role in this is that on October 28, as one of the nine financial institutions that received extraordinary assistance from the
United States government, Treasury injected capital into Citigroup
of about $25 billion. Eight weeks later, on December 31st, it injected another $20 billion; and on January 15th, 2009, it extended
guarantees of $301 billion in assets.
This was not the first time that Citigroup has needed government assistance to survive. During the Great Depression,
Citigroup, then National Bank, stayed alive only because of generous policies put in place by the U.S. government. Again in the
1980s, Citigroup, then operating as Citicorp, benefited from regulators’ decisions to waive standards during the Less Developed
Country debt crisis.
So today, we have Citigroup—the largest financial services company in the world—it has 200 million customers spread across 100
countries. It is really three different kinds of businesses combined:
a commercial bank, an investment bank, and an insurance company. It’s worth noting that the merger of these three companies
required special permission from the Federal Reserve in order to
occur and that, to operate, it required ultimately that the GlassSteagall laws be repealed so that Citigroup could do its business
in this new form.
Now, the turmoil that rocked Wall Street in 2008 has largely
subsided, and along with its peers, Citigroup appears to be returning to profitability. Last December, Citigroup repaid $20 billion in
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TARP assistance and terminated the asset guarantee arrangement.
Treasury planned to sell its remaining 27 percent stake in
Citigroup in December, although it was delayed because Citigroup’s
share price in December was below the price Treasury had paid
and it would have meant a certain loss for the United States government.
The sheer magnitude of Citigroup’s operations, and the company’s history of receiving extraordinary government support, has
led this Panel to an inescapable conclusion: Citigroup, along with
a handful of other financial institutions, enjoys an implicit government guarantee. Evidence thus far suggests that the United States
government will bear any burden and pay any price to ensure that
Citicorp does not fail.
In a February 10th research note, Standard & Poor’s issued
Citigroup a credit rating of A, three grades higher than it otherwise would have rated the company, quote, ‘‘To reflect the likelihood that if further extraordinary government support were needed, it would be forthcoming.’’ In other words, Citigroup is too big
to fail, and this fact is now directly, measurably affecting its credit
rating.
Were it not for the market’s view that Citigroup enjoyed this implicit government guarantee—a view reinforced in dramatic fashion
by the bailout that this Panel oversees—then it would be viewed
as a riskier investment, and frankly it would cost Citigroup more
to do business.
So, we will ask a number of questions today about the consequences, both to the taxpayer and Citigroup’s business, of the implicit guarantee; how Citigroup has used the tax dollars it received
over the course of the crisis and that it continues to hold today;
and perhaps most importantly, what are Treasury’s and what are
Citigroup’s strategies for ensuring the American taxpayer will
never again be asked to fund another bailout for this institution?
To help the Panel examine these issues, we will first hear from
Assistant Secretary of the Treasury for Financial Stability, Herbert
M. Allison, Jr. and then from Citigroup Chief Executive Officer,
Vikram Pandit.
To both of our witnesses, please know that we are sincerely
thankful to you for joining us. We appreciate your willingness to
help us learn from your perspectives.
Before we proceed with the first panel, allow me to offer my colleagues an opportunity to provide their own opening remarks. I
want to say that I understand that Mr. Atkins has been caught in
traffic, so I will ask Mr. McWatters if he would like to make an
opening statement.
[The prepared statement of Chair Warren follows:]

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5

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STATEMENT OF J. MARK MCWATTERS, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Mr. MCWATTERS. Thank you, Professor Warren. I very much appreciate the attendance of Assistant Secretary Allison and Mr.
Pandit, and I look forward to hearing their views.
Over the past two years, the taxpayers have repeatedly heard
the phrase ‘‘too big’’ or ‘‘too interconnected to fail’’ ascribed to certain financial institutions, and they have, no doubt, wondered,
what is captured by such a concept and why these financial institutions merited the investment of hundreds of billions of dollars of
taxpayer-sourced TARP funds.
Today we have the opportunity to learn why Citigroup was considered too big or too interconnected to fail, why Treasury allocated
$45 billion of TARP funds to the institution, and why Treasury, the
Federal Reserve, and the FDIC guaranteed over $300 billion of its
assets and liabilities.
Although I doubt if Citigroup’s credit card, branch banking, or
even its commercial lending division created the too big or too
interconnected to fail problem, it is critical that the taxpayers fully
understand why the failure of specific investment strategies and
business operations within Citigroup threaten the underlying financial stability of our country.
The taxpayers are also interested to learn if Treasury or the financial markets consider Citigroup, as presently structured, too big
or too interconnected to fail and whether yet another reversal of its
economic fortunes will necessitate the expenditure of additional
taxpayer-sourced TARP funds.
Perhaps the most troublesome aspect of such status is the moral
hazard risk arising from the implicit guarantee generated by the
willingness of the United States government to bail out excess risktaking and ill-considered business decisions undertaken by certain
financial institutions.
In addition, the implicit guarantee afforded those financial institutions considered too big or too interconnected to fail may place
such institutions at an inappropriate competitive advantage over
their smaller peers. As long as the possibility exists that Treasury
or the financial markets may consider Citigroup as too big or too
interconnected to fail, it is critical that Citigroup clearly articulate
to the taxpayers what actions it has taken to eliminate such status,
as well as the possibility that its directors, officers and employees
will engage in needlessly risky behavior that may impair the continued viability of the institution, and our overall economy.
Citigroup should disclose what risk management and internal control policies and procedures it has implemented so as not to require
a future bailout from the taxpayers.
In my view, one of the principal causes of the financial crisis was
the separation of risk from reward, where officers and employees
of TARP recipients were financially motivated to structure transactions so as to pass all of the risk of loss embedded in such transactions to their employer, or to third-party investors, while earning
significant personal compensation derived from the initial closing of
such transactions. It will be interesting to learn how Citigroup has
modified its compensation structure, so as to appropriately link remuneration with the inherent risk arising from the underlying

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6
transactions, as well as the performance of the institution, as a
whole.
It is also my expectation that the taxpayers will learn today
whether Citigroup will require additional TARP funds; whether
Citigroup is solvent on a fair market value basis after considering
contingent liabilities; whether Citigroup would be required to raise
additional capital if the stress test were repeated using current and
existing economic conditions; whether Citigroup has sold any mortgage-backed securities to the Federal Reserve, the Treasury,
Fannie Mae or Freddie Mac at a price in excess of then-fair market
value; whether Treasury has developed a rational exit strategy for
its investment in Citigroup; and, whether enhanced underwriting
standards and the precipitous drop in demand from prospective
borrowers has led to a material decrease in consumer and commercial lending.
Thank you for joining us today, and I look forward to our discussion.
Chair WARREN. Thank you, Mr. McWatters.
Mr. Silvers.

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STATEMENT OF DAMON SILVERS, MEMBER, CONGRESSSIONAL
OVERSIGHT PANEL

Mr. SILVERS. Yes, thank you, Chair Warren.
Good morning. Like my fellow panelists, I am pleased to welcome, once again, Assistant Secretary Allison to the Panel, and
Citigroup Chief Executive Officer Vikram Pandit. Before I turn to
the substance of our hearing, I want to note how much I particularly appreciate Mr. Pandit’s presence here today, and the thoughtfulness of both witnesses’ written testimony.
This is one of these extraordinary Washington moments where I
confess that I’m not sure I have much to add to my colleague, Mark
McWatters’, statement. I want to congratulate him on the thoroughness and appropriateness of his remarks. But, because this is
Washington, I can’t resist making my own.
Citigroup has played a unique role in the history of TARP. In
comments I’ve submitted for the written record, I go into this in
some detail, but in essence the uniqueness of the role is defined by
the fact that despite the existence in November of 2008, under the
TARP, of a Systemically Significant Failing Institutions Program,
and Citigroup’s obvious status at the time as a failing systemically
significant institution, Citigroup was not given aid under that program. Instead, it received its additional aid—beyond the Capital
Purchase Program described by my colleagues a moment or so
ago—it received that additional aid under what appeared to be
more favorable ad hoc terms.
Now, obviously, Mr. Allison was not present at that time, and the
decisions at that time were made by Secretary Paulson and his
team. But these events have helped define TARP from its inception. The Citigroup bailout, and the Bank of America bailout that
followed, which was modeled on it, raised—and continue to raise—
serious issues of transparency and equitable treatment for financial
institutions of varying size and political clout.
Now, more recently, up until December of last year, Citigroup’s
regulators were unwilling to allow Citigroup to repay TARP funds

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7
and thus emerge from TARP-related oversight. The regulators reversed themselves in December of 2009, and Citigroup completed
a common stock offering whose proceeds were used to repurchase
the government-owned preferred stock that had not already been
converted into common, but the government was left as Citigroup’s
largest common stockholder.
Now today, in the aftermath of that transaction, it appears clear
that the Obama Administration’s Treasury Department has managed TARP’s holdings in Citigroup to affect what is essentially a
limited balance sheet restructuring; effectively requiring or inducing Citigroup’s preferred stockholders to become common stockholders—not just the government, but the private preferred stockholders that preceded the government on the balance sheet. Now,
this step, this move, diluted common stockholders’ share of future
profits substantially, and this is something I strongly support from
the perspective of fairness and moral hazard—some of the considerations that my colleagues were mentioning a moment or so ago.
But these transactions did not appreciably alter Citigroup’s total
Tier 1 capital, as a percentage of Citigroup’s risk-adjusted assets,
nor did it result in any consequences for Citigroup’s bondholders.
As a result, I remain concerned that Citigroup’s balance sheet remains vulnerable, that Citigroup is only intermittently profitable,
and that there are 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. In particular, I note
that in the report that our chair referred to a moment or so ago,
a relatively sympathetic report, Standard and Poor’s noted that its
credit rating for Citigroup, as was just mentioned, was three
notches higher than it would have been were Citigroup standing on
its own, that Citigroup remained on the less well-capitalized end
of its global peers, fully risk-adjusted. And I think this is a critical
fact, at least that Standard & Poor’s believes this, and I want to
explore this later with the witnesses. And finally, that the outlook
for Citigroup remained negative.
Now, these events, in total, leave many unanswered questions,
frankly, more than we will be able to address today. I hope,
though, that we will be able to focus today on the following key
issues: (1) What aspects of Citigroup’s business model prior to the
financial crisis made the company particularly vulnerable to that
crisis, and do those vulnerabilities remain? (2) Has Citigroup’s balance sheet been sufficiently restructured, meaning has a hard
enough look at the assets been made, per my colleagues Mark
McWatters’ comments? And have the liabilities been dealt with
adequately to reflect the true state of the assets, and (3) What is
the proper strategy for the Treasury Department now in relation
to its current continuing role as Citigroup’s largest shareholder?
And finally, in light of this history, what steps should the Treasury
Department take to ensure that in the future Citigroup is treated
fairly in the context of how other banks, both large and small, are
treated under TARP and related government programs?
So, I look forward to discussing these and other issues in the
body of this hearing. And once again, I want to express my deep
thanks and appreciation to the witnesses.
[The prepared statement of Mr. Silvers follows:]

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10
Chair WARREN. Thank you, Mr. Silvers.
Mr. Atkins.

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STATEMENT OF PAUL ATKINS, MEMBER, CONGRESSIONAL
OVERSIGHT PANEL

Mr. ATKINS. Thank you, Madam Chair.
I’d also like to add my thanks to Mr. Allison and Mr. Pandit for
appearing before this panel today. You are here voluntarily, and
are taking valuable time out from your very busy schedules—especially this time of year—to be here in Washington. We, and the taxpayers, thank you for helping to bring some openness and personal
connection to our oversight role.
Like the rest of the financial services industry, Citigroup has had
huge challenges during the past couple of years. Without the U.S.
taxpayer, Citigroup might not be in business at all today.
Citigroup’s stock chart over the last 3 years shows a sad decline
from more than $55 per share in 2007, to $3 a share today. That
represents a huge loss for shareholders, ultimately retirees on fixed
incomes, parents saving for college, and people putting money away
for a rainy day fund.
But it also means a huge loss of wealth for employees, many of
whom have lost much of their most important asset. It’s difficult
to rebuild loyalty, enthusiasm, innovation, and motivation in that
sort of environment. A financial services firm may have lots of assets, but ultimately—like any company—it’s only as good as the
quality of the people that it attracts. Does a huge stake owned by
Treasury help or hurt that effort? A financial services firm, ultimately, like any company is only as good as the people that it attracts.
There are many risks to taxpayers as shareholders of an enterprise such as Citigroup which, of course, is going through many
major changes. Its holdings of self-described ‘‘non-core businesses’’
have decreased by some 40 percent over the last year or two. There
is, of course, no assurance that this realignment will be successful,
or that it will reposition Citigroup for success in the future, and
that’s the risk that an equity holder takes, analyzing management’s decision-making and deciding whether or not to go along for
the ride. Of course, the taxpayer in this case is both, as Treasury
terms it, ‘‘a reluctant shareholder,’’ and also, ‘‘a totally inexperienced shareholder.’’ It’s certainly not Treasury’s core expertise.
I should make a couple of points regarding regulatory risk, because Citigroup, like a lot of people in business, faces business
risks, credit risks, counter-party risks, exchange risks, and of
course, also political and regulatory risks. Congress, of course, is
considering several bills that could reshape the regulatory landscape significantly, and I strongly disagree with some of the positions that Citigroup has taken in this regard and I’m concerned
that Citigroup is allowing itself to become a politicized entity.
It’s difficult to avoid the impression that one of the motivations
is for the company to curry favor with the hand that feeds it,
whether it be crammed-down systemic risk regulator, resolution
authority or whatever, my fear is that Citigroup is currying favor
with its largest shareholder at the expense of the enterprise and
all shareholders.

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Just last year, in the Citigroup branch here in Washington on
18th and Pennsylvania, just one block from the White House, the
tellers all had several copies of a book by Barack Obama at their
stations. When I asked if that were a political statement, the teller
told me, ‘‘No, we’re giving them away to people who open new accounts.’’ Well, that certainly is a political statement, or at least, an
amazing example of sycophancy to your biggest shareholder.
So, today I’ll be very interested to hear how Treasury manages
its investment in Citigroup and what its timing for divestiture will
be, given the current marketplace situation and its contractual limitations. Citigroup has many ambitious plans, and several decisions
to make before a Treasury offering can be accomplished, so I look
forward to exploring these issues this morning.
Thank you very much.
Chair WARREN. Thank you, Mr. Atkins.
Superintendent Neiman.

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STATEMENT OF RICHARD NEIMAN, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Mr. NEIMAN. Thank you, and good morning.
Today’s oversight hearing, in my opinion, is a unique opportunity. In addition to the reasons stressed by my panel colleagues,
my hope is that we will be able to view critical oversight topics
through two different perspectives: that of the Department of the
Treasury, the creator and administrator of the TARP program, and
that of Citigroup, one of its largest recipients.
Having Assistant Secretary Allison and Mr. Pandit here together
at this event is an occasion to consider whether TARP strategies
are working, and to determine if we are taking the right steps
going forward.
I will be especially interested to hear whether our witnesses believe that larger banks like Citigroup have turned the corner. After
the public confidence inspired by the stress tests and subsequent
earnings reports, are larger institutions still in need of TARP support? Does the return of many larger institutions to profitability
signal a return to sustainability in their business model, or are
temporary trading gains masking continuing weaknesses and
losses in loan portfolios?
Citigroup has engaged in serious realignment and reorganization
efforts, both through the creation of Citi Holdings and in
divestitures of business lines. Has the taxpayers stake in Citigroup
been well-served by these actions? Are there lessons learned from
Citigroup’s experience that could apply to other institutions?
Finally, we must take advantage of Mr. Pandit’s presence today
to question him not just from the perspective of our ownership interest in Citigroup, but also as homeowners and consumers.
Citigroup has a large number of mortgages at risk of foreclosure,
so I intend to fully explore Citigroup’s modification efforts under
HAMP and alternative programs.
Citigroup is also a large and important consumer lender, so the
public will gain a great deal by exploring their lending practices
and their view on how regulatory reform should protect consumers.
If we have learned anything from this crisis, though, it is that
risk can materialize where it is least expected. Therefore, a stra-

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tegic vision for institutions, for TARP, and for broader regulatory
reforms, must creatively think about the range of developing risks
and how best to protect consumers and taxpayers.
I look forward to your contribution to this process through your
testimony today and the answers to our questions, and I personally
want to thank you again for your attendance.
[The prepared statement of Mr. Neiman follows:]

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15
Chair WARREN. Thank you, Superintendent Neiman.
Mr. Allison, would you like to make some opening remarks? If
you would, hold yourself to five minutes. We will, of course, take
any written remarks and include them in the record. Thank you.

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STATEMENT OF HERBERT M. ALLISON, JR., ASSISTANT SECRETARY FOR FINANCIAL STABILITY, U.S. DEPARTMENT OF
THE TREASURY

Mr. ALLISON. Thank you very much, Chair Warren and members
Silvers, Neiman, Atkins and McWatters, for the opportunity to testify today.
I will discuss Treasury’s investments in Citigroup, our reasons
for making these investments and our progress toward exiting
them.
In September 2008, the nation was in the midst of one of the
worst financial crises in our history. The economy was contracting
sharply and fear of a possible depression froze financial markets.
The U.S. government took unprecedented steps to prevent the complete collapse of the financial system that threatened the economy.
In one of the most important responses to the crisis, Congress enacted the Emergency Economic Stabilization Act, or EESA, which
granted Treasury authority to restore liquidity and stability to the
U.S. financial system through the Troubled Assets Relief Program.
Since TARP’s creation, Treasury has made cash investments of
$245 billion in 707 banks.
There is broad agreement today that, because of TARP and other
governmental actions, the United States averted a potentially catastrophic failure of the financial system.
In a series of transactions under TARP, Treasury invested a total
of $45 billion in Citigroup and agreed to share losses on a portfolio
of approximately $301 billion of Citi’s assets. In February 2009,
Treasury announced stress tests for the 19 largest U.S. bank holding companies to measure how much additional capital each institution would need in order to remain sufficiently capitalized if the
economy were to weaken further. The stress test results, announced in May, indicated that 9 institutions had adequate capital
and that the other 10 would have capital needs totaling $75 billion.
Of this amount, Citigroup’s additional capital requirement was $5.5
billion.
After the stress test was completed last May, Citi conducted a series of exchange offerings from preferred shares to common, and
significantly improved its Tier 1 common equity. Treasury converted $25 billion of its preferred to common at $3.25 per share.
Large banks have subsequently raised $110 billion of new common
equity, and $43 billion of capital in other forms. The banks renewed access to capital in the public markets has enabled them to
make repayments to Treasury totaling $169 billion to date, representing 70 percent of all TARP investments in banks.
While the financial markets have not yet fully recovered, conditions have significantly improved. Treasury has notified Congress
that it does not expect to use more than $550 billion of the $700
billion authorized for TARP, and is terminating the Capital Purchase, Asset Guarantee, and Targeted Investment Programs.

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In December of 2009, the Federal Reserve agreed to allow
Citigroup to repay Treasury’s exceptional assistance and terminate
the asset guarantee. To be permitted to take these measures, Citi—
like the other institutions subject to the stress test—was required
to have a post-repayment capital base at least consistent with the
stress test standard, and to have further demonstrated its financial
strength by issuing senior, unsecured debt for a term greater than
five years and without the backing of FDIC guarantees.
Today, Citigroup has repaid the $20 billion in exceptional assistance and has paid $2.8 billion in dividends to Treasury. Taxpayers
have earned a profit on these investments. The government’s contingent liability for the asset guarantee has been terminated at no
loss to the government, in fact, taxpayers have made a profit from
this guarantee.
Additionally, Treasury has announced plans to divest the government’s holdings of Citigroup’s common shares in an orderly manner
over the next 12 months. Decisive actions taken by the U.S. government have created a financial system far stronger than a year
ago. However, the financial system is operating under the same
rules that led to its near collapse. These rules must be changed to
address the moral hazard posed by large, interconnected financial
institutions that present risk to the financial system. The Administration has proposed comprehensive financial reforms that seek to
force these institutions to internalize risk, remove expectations of
government support, and protect taxpayers from having to finance
future interventions.
Thank you very much.
[The prepared statement of Mr. Allison follows:]

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Chair WARREN. Thank you, we appreciate your being here, Mr.
Allison.
I’d like to start this morning with Treasury’s role in overseeing
TARP, generally and overseeing Citi, in particular.
On October 14th, 2008, Secretary Paulson announced the creation of the Capital Purchase Program and the infusion of cash
into nine financial institutions, including Citi, and under the program he announced—these are the words he used—‘‘These are
healthy institutions, and they have taken this step of accepting
taxpayer money for the good of the U.S. economy. As these healthy
institutions increase their capital base, they will be able to increase
their funding to U.S. consumers and businesses.’’ On October 28,
under that program, Citi got $25 billion and was pronounced a
‘‘healthy institution.’’
And yet, on November 23rd, which I think is about three weeks
and four days later, the Secretary of the Treasury said that Citi
was—Citi and Citi alone—was in such dire straits that it would
need an additional $20 billion, and that was, then, followed by another $102 billion in guarantees.
What I want to understand is, now we describe Citi as a ‘‘healthy
institution,’’ what does ‘‘healthy’’ mean now that it didn’t mean on
October 14, 2008?
Mr. ALLISON. Thank you, Chair Warren, for your question.
Again, as you know, the Treasury does not make comments
about the financial health of any particular institutions. In having
the funds repaid——
Chair WARREN. I’m sorry, I was quoting the Secretary of the
Treasury on the health of Citi and other financial institutions.
Mr. ALLISON. I think at the time that was an extreme situation..
I’m not going to comment or second-guess what the Secretary of the
Treasury at that time had to say.
Chair WARREN. So, your position is that we declared it a healthy
institution, and now we take no position on the financial health of
Citi?
Mr. ALLISON. It’s not our policy to comment on whether any institution presents a systemic risk or on its particular health.
I might also say that, because we’re a large shareholder in Citi
at this time, as you pointed out, we can’t make comments on the
prospects of Citigroup.
Chair WARREN. But you’re making the decisions at Treasury
about Citi’s backing out of the TARP program.
Mr. ALLISON. I think it’s very important to point out that that’s
not the case. In fact, under the law passed by Congress, we have
no decision-making with regard to Citi’s repayment to Treasury.
That authority is given to the regulators of these banks. They
make that determination after—as I mentioned in my testimony—
they conduct additional tests of the capital adequacy of the institution that is proposing to repay. We then, once they’ve made that
determination, that is, the regulatory agency, we have no choice
but to receive the funds in repayment.
Chair WARREN. So, you see the role of Treasury here as passive
on the question of Citi’s financial structure? Passive on the question of Citi’s overall economic health?
Mr. ALLISON. We certainly——

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Chair WARREN. Treasury is not involved in this?
Mr. ALLISON. Chair Warren, we are strongly advocating financial
reforms to prevent this situation from happening again, by assuring that no single institution can threaten the financial system.
Chair WARREN. I appreciate that, but are you telling me you are
exercising no supervision over Citi in its financial operations today?
No oversight of the financial health of this institution?
Mr. ALLISON. As you know, Madame Chair, we are a very reluctant shareholder, as Mr. Atkins pointed out. We wish to dispose of
those shares into the public market as soon as circumstances permit, in an orderly manner. We are—we have agreed, with
Citigroup, in a contract and we’ve stated publicly, this is the general policy of the U.S. Treasury—we are not going to be an active
shareholder, we are not going to interfere in the day-to-day management of these companies——
Chair WARREN. So——
Mr. ALLISON. We will only vote in a proxy on certain, well-defined, and limited circumstances.
Chair WARREN. So, the health of Citi is not your department.
That belongs somewhere else in government.
Mr. ALLISON. Again, we are concerned about the financial system. We’re concerned that no institution should be able to present
significant risk to the financial system, and that’s why we’re
strongly advocating financial reforms that we hope will be enacted
by Congress shortly.
Chair WARREN. Right, I understand that about going forward.
Let me just ask one other quick question, if I can slip it in, and
that is, under the stress test, Citi was required to raise $58 billion
and in exchange, offered another $5.5 billion in fresh capital. If Citi
had not been able to raise that money, what would Treasury have
done?
Mr. ALLISON. Well, I think that’s a hypothetical question——
Chair WARREN. Yes, it is.
Mr. ALLISON. Yes, it is. Citi did make these exchanges, we participated in that exchange, as I testified.
Chair WARREN. What would Citi have done if it could not have
raised the money?
Mr. ALLISON. I can’t speculate on that.
Chair WARREN. You can’t speculate.
Mr. ALLISON. I can’t.
Chair WARREN. About what they would have done?
Mr. ALLISON. No.
Chair WARREN. All right, thank you. My time is up.
Mr. ATKINS. Thank you, Madam Chair.
I wanted to explore a little bit about the offering that Citigroup
did last fall, last summer, I guess it was. So, I just wanted to get
your explanation, there was obviously, it looked like, not as smooth
as probably either you all or Citi wanted it to go. So, I wanted to
ask for your explanation of how that hiccup happened in the offering process?
Mr. ALLISON. Well, again, Citi managed the offering. That was
their decision. We did announce, at the time, that we intended to
sell not our entire offering, but $5 billion, perhaps, alongside Citi’s
offering.

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We decided that, because of the behavior of the stock at that
time, it was not in the taxpayers’ interest to make that sale, on our
part. As to their offering, I wouldn’t comment on the offering. They
did succeed in placing $20 billion of new shares, and obviously
shareholders were willing to make that investment, in the public
market. And what’s really important is that they were setting the
stage to replace government capital with public capital, which we
think is much stronger capital. We don’t want to be a shareholder
in that company and we think that companies are far stronger if
they’re public—if they’re financed out of the public, rather than the
government.
Mr. ATKINS. Well, when we look now, then, at the situation, with
respect to the stock and there’s some 27 billion shares or so outstanding. The most shares of any New York Stock Exchange-listed
company that I know of and, of course, the government owns about
27 percent of that.
So, have you all considered that once the lock-up period ends,
how you will tackle such a large disposition of shares? Especially
with the share price being below $5?
Mr. ALLISON. Yes, Mr. Atkins, we’ve given this very careful
thought, as you can imagine. I’m not in a position to make a public
statement about how we will dispose of our shares—that’s not in
the taxpayers’ interest—but I can assure you that we’ve looked at
many different alternatives and consulted widely, and we will be
making our decision apparent over time.
Mr. ATKINS. So, you intend to hold, perhaps, a number of offerings rather than one?
Mr. ALLISON. As much as I’d like to be responsive to your question, I don’t think it’s in the taxpayers’ interest to do so, sir.
Mr. ATKINS. No, I agree. Okay.
Well, as far as, then, your involvement with respect to management and the Board of Citigroup, could you sort of explain to me
how often you have contacts and what sort of contacts those are?
Mr. ALLISON. We have contacts with Citi as we do with many
other banks. We are taking a very limited role as an investor. We
are not getting involved in the day-to-day management of
Citigroup. Instead, we will only be active as a shareholder in voting
for Directors, in voting on major corporate events, in voting on
issuance of significant new shareholdings in major asset sales, in
changes in by-laws or charter. Other than that, we intend to act
as any public shareholder.
Mr. ATKINS. Well, when we had a hearing last week with respect
to GMAC and when the government took the position in GMAC
which, of course, was declared to be a bank holding company, they
took seats on the Board and are increasing the number of seats because of the amount of the holding has increased in GMAC.
Citigroup is, of course, in a different position, although two Board
members have recently announced are leaving the Board. Is there
any plan for the government to have members of the Board?
Mr. ALLISON. We have the right and the ability to vote on Directors and that’s the position that we’ll take at the appropriate time.
Mr. ATKINS. So, you have no plans to put a government representative on the Board?

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Mr. ALLISON. No, I would note that Citigroup’s Board has
changed significantly in recent times. In response, I presume, to
this crisis.
Mr. ATKINS. But that was not due to government prompting
or——
Mr. ALLISON. I cannot comment on that, and I don’t have that
information.
Mr. ATKINS. I see. Okay.
My time is up, thank you.
Chair WARREN. Mr. Silvers.
Mr. SILVERS. Thank you.
Assistant Secretary Allison—I’m somewhat disappointed by the
way in which you appear to be narrowing your testimony in response to questions from the chair. I’m looking at your written testimony and I want to make sure that I—it appears to me that the
statement—the statement on page three of your written testimony—in relation to Treasury’s investments in Citigroup—that
Treasury believed its actions were warranted and necessary, that
represents the taking of a position on several questions related to
Citigroup. So, I’m going to try to unpack what I believe the position
you’re taking is.
For starters, would you concur with the statement that in November of 2008, Citigroup was a systemically significant financial
institution?
Mr. ALLISON. I would.
Mr. SILVERS. You would. Okay. So, at least we’ve established
something, here.
Mr. ALLISON. We have.
Mr. SILVERS. Secondly, would you concur with the statement that
on November 21st, 2008, Citigroup was a failing institution?
Mr. ALLISON. I think that the entire banking system was at risk.
Virtually all major banks were having difficulty, or would have had
difficulty, funding themselves. I think that that was probably the
most significant financial crisis the country has faced.
Mr. SILVERS. Assistant Secretary, did any other financial institutions contact the Treasury Department on November 21st, 2008
and express the view that they were going to fail within a week?
Mr. ALLISON. Mr. Silvers, I was not there at the time, I cannot
comment on that.
Mr. SILVERS. Okay, can you check the phone records, perhaps
and see if anyone else happened to have made such a call?
Mr. ALLISON. We’ll be happy to respond to your question, yes, sir.
Mr. SILVERS. There is now voluminous press and I think, now,
book accounts and—for all I know—songs and TV shows in which
this, what I just stated to you, has been asserted. Do you have any
reason to believe that Citigroup did not do that?
Mr. ALLISON. I have no reason to believe, either way. I have no
knowledge of it, and therefore I cannot comment, but we will respond to your question.
Mr. SILVERS. Well, you said the entire financial system was failing. Do I interpret that to mean that you agree that Citigroup was
failing on that date?
Mr. ALLISON. I believe that incredibly strong action was necessary at that time to prevent a catastrophic failure——

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Mr. SILVERS. But Mr. Assistant Secretary, that’s not my question. My question is—and I don’t disagree with you, by the way,
that strong action was needed at the time, and during that period.
But I’m asking you, was Citigroup a failing institution? This, clearly, can’t be that complicated a question to answer.
Mr. ALLISON. I’m trying to comment on the broader issue,
and——
Mr. SILVERS. But I’m not asking you about the broader issue, I’m
asking you about a specific firm.
Mr. ALLISON. Yes.
Mr. SILVERS. The subject of this hearing.
Mr. ALLISON. I’d like to respond to your question, if I may.
Mr. SILVERS. Sure.
Mr. ALLISON. I think that Citi, and a number of other banks,
many banks, would have been on the brink of failure had the system not been underpinned by actions of the government—including
the Federal Reserve and the U.S. Treasury.
Mr. SILVERS. But no other—the Treasury Department took the
type of systemic action that you’re talking about, truly systemic action, a month earlier.
Mr. ALLISON. Yes.
Mr. SILVERS. And, as you note, the Fed took certain other actions, but a unique step was taken that week with respect to Citi.
Mr. ALLISON. In the case of Citi in that week, what action was
taken. Citi was in a position where it was—and it did communicate
this to Treasury, I know this—that they could have difficulty funding themselves at that time. Their debt spreads had widened considerably, and so, in the opinion of their management, they were
facing a very serious situation.
Mr. SILVERS. These sound like euphemisms for ‘‘failing.’’ I don’t
understand, frankly, and I have the greatest respect for you and
the work you’ve done with the TARP, and I don’t mean to be taken
in any other way, but I do not understand why it is that the United
States government cannot admit what everyone in the world
knows, which is that, in that week, Citigroup was a failing institution. And I don’t understand why—since no one denies that they
called the Treasury Department and asked for extraordinary aid
and said, effectively, they would run out of cash, why it is that we
can’t all agree that they were failing. Can you explain to me why
that is?
Mr. ALLISON. I’m not trying to take issue with your characterization.
Mr. SILVERS. Okay, let’s move on.
Mr. ALLISON. What I’m trying to do is to describe what the actual
situation was.
Mr. SILVERS. Well, we agree, then that they were failing. So, they
were a failing systemically significant institution. We’ve established that much.
Now, can you explain why they were not placed in the program
that Treasury had at the time—and again, I know that you weren’t
there but you devoted a substantial part of your written testimony
to defending these actions. Can you explain why a systemically significant failing institution was not placed in the Systemically Significant Failing Institutions Program?

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Mr. ALLISON. There was a program, a Targeted Investment Program and——
Mr. SILVERS. But, Mr. Assistant Secretary, that program did not
exist on that date.
Mr. ALLISON. Well, I don’t have the details on the particular circumstances around that investment. It’s my understanding that
that investment—if you’re talking about the additional $20 billion—was characterized as part of the Targeted Investment Program. I’d be happy to look at that, too——
Mr. SILVERS. Six weeks after it was made, Mr. Secretary.
Mr. ALLISON. Right.
Mr. SILVERS. Can I just—I know my time is expired, if you can
indulge me for five more seconds, or 10 more seconds—I just find
it—I find it extraordinary that it’s not possible to simply have a
straightforward conversation about this.
Mr. ALLISON. I’m trying to—Mr. Silvers, at the time I was not
there.
Mr. SILVERS. I know you weren’t there. I don’t understand why,
then, you’re so protective of decisions that I don’t think make any
sense.
Mr. ALLISON. I don’t think I’m being protective, I’m trying to describe what I know, sir.
Chair WARREN. Thank you.
Mr. ALLISON. In a factual way and not a normative way.
Chair WARREN. Thank you, Mr. Allison.
Mr. McWatters.
Mr. MCWATTERS. Thank you.
Mr. Allison, do you have any reason to anticipate that Citigroup
will require additional TARP funds?
Mr. ALLISON. None.
Mr. MCWATTERS. I’m sorry, I don’t understand your response. No
more TARP——
Mr. ALLISON. I have no reason to expect, and we have no plans
whatsoever to make further investments in Citigroup.
Mr. MCWATTERS. Fair enough.
On a fair market value basis, after considering contingent liabilities, do you believe Citigroup today is solvent?
Mr. ALLISON. Again, we rely on the determinations by the regulator which, I know, carefully reviewed their financial situation before they agree to permit repayment to the Treasury Department
by Citigroup.
Mr. MCWATTERS. That sounds like yes.
Mr. ALLISON. I make no comment, as I mentioned before, about
the state of Citigroup. We, as a shareholder, cannot comment on
their condition or their prospects.
Mr. MCWATTERS. Let me ask this—if the stress tests were conducted again today, using current economic conditions and the expectation of future economic conditions, would Citigroup be required—most likely be required—to raise additional capital?
Mr. ALLISON. That would be a determination by their regulators,
not by the Treasury Department.
Mr. MCWATTERS. So, what do you think?
Mr. ALLISON. I would like to be as forthcoming with you as I can.
I am here to provide you with information. We cannot make a com-

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ment on the Citigroup’s prospects or their financial condition, as a
shareholder in Citigroup at this time, and as an institution that is
not their regulator.
Mr. MCWATTERS. But after the taxpayers invested $45 billion,
$300 billion guarantee, your answer is the financial equivalent of
the Fifth Amendment? I mean——
Mr. ALLISON. No, sir. What I would point out is that Citigroup
has repaid the U.S. Treasury $20 billion and we have terminated
that guarantee for $301 billion——
Mr. MCWATTERS. Yes.
Mr. ALLISON. So, today we are a shareholder in Citigroup, only.
Mr. MCWATTERS. Which is the reason I ask——
Mr. ALLISON. Yes, sir.
Mr. MCWATTERS [continuing]. If they’re solvent, and whether you
anticipate additional money will be required from TARP?
Mr. ALLISON. I’ve said that, we don’t anticipate any additional
money will be required from TARP. We have no plans in that regard, we are intending to dispose of our investments in Citigroup,
as rapidly as we responsibly can.
Mr. MCWATTERS. What do you anticipate the exit strategy will
be?
Mr. ALLISON. Again, as we said, we intend to dispose of our holdings in a responsible, careful manner within the next year.
Mr. MCWATTERS. Okay.
Have you thought about completing another round of stress tests
under current economic conditions?
Mr. ALLISON. We, again, understand and know that the regulators are carefully monitoring these banks. It is not our role to
perform stress tests of the banks, that’s done by the regulators in
close consultation with those banks.
Mr. MCWATTERS. But have you thought about the issue? Have
you made a recommendation? Do you think the stress tests should
be run again? Or is everything okay?
Mr. ALLISON. We believe that the financial system is in far better
shape than it was before, evidence of that is the fact that banks
have been able to raise substantial amounts of equity, and also
have been raising debt funds without government guarantees. And
therefore, as we look forward—as I testified—while we still see
some problems in the financial system, it’s far stronger than it was
a year ago.
Mr. MCWATTERS. Have the current stress tests been audited by
GAO? Are they in the process of being audited?
Mr. ALLISON. I don’t know whether GAO has audited those stress
tests. We will get back to you on that question.
Mr. MCWATTERS. Okay. And I would like to know when you expect the results of the audits, what you anticipate they will say and
whether or not there was an understatement of required capital?
Mr. ALLISON. Again, I can’t speak for other agencies of the U.S.
government.
Mr. MCWATTERS. I understand.
I have a short time left, but why, specifically, do you think that
Citigroup needed to be bailed out? What happened? What was the
problem? And again, as I said in my opening statement, it wasn’t

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branch banking, it wasn’t credit cards, I think, it was something
else. What was that, and has it been fixed?
Mr. ALLISON. Well, I think what we saw was a great deal of risk
in the financial system at that time. It became quite evident as the
markets began to seize up that these institutions were facing large
exposure in a variety of ways, and that their capital could be rapidly depleted, which led to the TARP program, where Congress
itself agreed that this was an unprecedented crisis, and that the
U.S. government would have to step in to provide support.
Mr. MCWATTERS. Okay, my time is up.
Chair WARREN. Superintendent Neiman.
Mr. NEIMAN. Thank you.
Mr. Allison, as you know, on our next panel, we’re all going to
be hearing from one of the largest banks in the country and one
of the largest TARP recipients. I’d like to explore with you, during
my time, the dynamics around large banks, both in terms of current market conditions, and the future direction of TARP?
So, the question is, how do you view the trend of repayments
from Citi, but also the larger institutions that have repaid TARP
funds? And, specifically, how much of it reflects a return to health
and how much of it reflects—or is a reaction against programs,
standards, or the stigma of participating in TARP.
Mr. ALLISON. Well, first of all, we are pleased to see that large
banks have succeeded in raising substantial amounts of equity capital in the public markets, and that they are replacing government
capital with public capital, to the point we’ve now received back 70
percent of the government’s investment in banks at a significantly
profit to the U.S. taxpayers. And, as they replace government capital with public capital, the quality of that capital is certainly far
better, and it provides a base for them to do additional capital
raises, going forward.
So, we are highly encouraged and pleased by the progress that
has been made in these banks recapitalizing themselves in the public market.
Mr. NEIMAN. So, does that return of capital—and in many cases,
profitability—does it reflect a return to sustainable profits in their
business model? Or do you see it as a reflection of temporary trading gains that may possibly be masking continuing weaknesses and
losses in loan portfolio?
Mr. ALLISON. Well, we look at their capital ratios—the large
banks have shown material improvement in the Tier I and equity
ratios, which is the most important type of capital. And they’re able
to raise funding in the markets—the markets are observing the
health of these banks, and what we’re seeing is evidence—through
these capital raises—of greater public market confidence in the
health of these banks.
Mr. NEIMAN. And what does it say about the quality of the earnings? Is that sustainable as to where it’s coming from? And to the
extent that it’s coming from lending versus trading, I think is an
important factor.
Mr. ALLISON. Well, again, if I start commenting on earnings
streams, some may interpret it as my commenting on Citigroup,
and I’ve got to be extremely careful.

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Mr. NEIMAN. Right. Let’s talk more broadly, because we do have
metrics.
Mr. ALLISON. Yes.
Mr. NEIMAN. And I think some of the more important ones are
those that have come out of the Federal Reserve, the quarterly—
from the FDIC on lending statistics—their last quarterly banking
report, issued last week, shows historic drops in lending levels. In
fact, it’s the largest yearly decline since the FDIC was created.
How would you analyze and interpret this data regarding decreased lending levels. Does it show a significant lack of progress
in financial stability, or other factors, in your interpretation?
Mr. ALLISON. Well, there are many possible reasons for the decline in lending and this has been widely discussed.
It can be due to a natural caution, during a recession, on the
part both of borrowers and lenders. And, as I’m sure you know, we
have announced a program to provide—to make available—additional capital to mid-sized and small banks who do outsized
amounts of lending to small businesses around the country. We’re
going to announce a $30 billion program, we’re hoping to get congressional approval for aspects of that program, and to move it forward as rapidly as possible. And that program is geared to lending,
because it will—it provides for sharp reductions in dividend payments to Treasury on the part of banks that lend materially more
than they are today.
Mr. NEIMAN. One more question on metrics—one of the important metrics that we have used is the Treasury’s monthly snapshot
of the largest banks who have been reporting.
Mr. ALLISON. Yes, yes.
Mr. NEIMAN. As I look at the data, most recently, of February
16th, the snapshot now only reflects 11 institutions, because it no
longer contains institutions that have repaid TARP funds, and I
think in this report it was, ‘‘Have repaid in June of 2009.’’
Mr. ALLISON. Yes.
Mr. NEIMAN. I think that will have limited, continued limited
usefulness, this data, as we go forward, to the extent that institutions are excluded from the report. Is there any consideration of expanding it? I could see continuing asking institutions to continue
to report, despite the fact that TARP funds may have been repaid.
Mr. ALLISON. Yes, yes. In fact, when the banks began to repay
last summer, we called the banks that were repaying and requested that they continue to report through the end of this year,
and they all agreed to do that. We’ll be happy to take your question
under consideration.
Mr. NEIMAN. Yes, I think early on we’ve even encouraged expanding it more broadly——
Mr. ALLISON. Yes, yes.
Mr. NEIMAN. And we’d be very concerned to the extent that it is
limited.
Mr. ALLISON. Yes. Thank you.
Mr. NEIMAN. Thank you.
Chair WARREN. Thank you.
Mr. NEIMAN. My time is expired.
Chair WARREN. Thank you.
Thank you, Superintendent Neiman.

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So, I was struck by your comment, Assistant Secretary Allison,
that the taxpayers made a profit on your deal with Citigroup, that
Citi has a too big to fail guarantee, that is very valuable right now.
It shows up in their credit rating that the American taxpayer will
not let them fail. What is Citi paying the taxpayers for that guarantee?
Mr. ALLISON. First of all, there is no too big to fail guarantee on
the part of the U.S. government. And I can’t account for any statement that some outside agency may make.
We intend, as I mentioned, to dispose of our shares in Citigroup
as soon as possible.
Chair WARREN. Mr. Allison, I understand that. But the question
I’m asking, the market clearly perceives that there is a too big to
fail guarantee, and the market is rating Citi higher because of
that. That gives Citi an advantage in raising capital, that is very
valuable to Citi and it is potentially very costly to the American
taxpayer, and I want to know if the American taxpayer gets paid
for that.
Mr. ALLISON. Well, really what you’re pointing out is the need for
re-regulation of the financial system.
Chair WARREN. I understand that.
Mr. ALLISON. Because it’s essential that no institution is
viewed——
Chair WARREN. I will take that as a no, that we are not being
paid for the guarantee that we are——
Mr. ALLISON. There is no guarantee of that institution, or any
other institution.
Chair WARREN. I will take that as a no.
So, let me ask, you said we have no more plans to put TARP
funds into Citigroup. Part of the reason that Citigroup had to be
bailed out stemmed from the difficulty of untangling the operations
and counterparty risks around the world. So, what I’d like to know
is, how has Treasury managed systemic risk questions posed—not
just by Citigroup—but by all of the large companies, but particularly by Citigroup in consultations with your regulatory counterparts around the globe? What are you doing about that? Are we
any safer than we were a year ago?
Mr. ALLISON. There are continuous conversations with financial
leaders around the world and I think you’ve seen them say that
there’s closer coordination today and much better communication.
Chair WARREN. Well, I’m glad that there may be more coordination, let me ask it in the more specific, perhaps, with respect to
Citi. Are you making any effort to separate Citi’s activities, it’s
counterparty risks and operations around the world, that we say
could cause systemic failure? Are we making any effort to segregate
that, say, from their trading activity that’s a fairly high-risk undertaking?
Mr. ALLISON. Again, as you know, we’ve made many statements
and taken the initiative to request major changes in financial regulation in this country which could address a number of those
issues.
For example, insisting on capital adequacy, comprehensive oversight of these institutions, and very important, a resolution authority so that no institution and—the government should not be put

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in the position of having to take over an institution, or to somehow
support it.
Chair WARREN. Mr. Assistant Secretary?
Mr. ALLISON. Yes.
Chair WARREN. I appreciate the need for reform of the financial
system. And looking forward, I think that’s exactly what we have
to do. The question, however, is that we have a system in place
right now. Treasury came to the United States Congress and said,
in October of 2008, ‘‘We have to have $700 billion or the economy
will fail.’’ One of the specific problems is that Citi had this deeply
intertwined, overseas operation that, we were told, as a people
would, if we tried to unravel it, cause a systemic shutdown in economic markets. The results would be catastrophic. And that was
one of the principle reasons that the American Congress went
along with the TARP bailout.
So, my question is, what are you doing about that now? What are
you doing to isolate the part of Citi, and Citi’s operations that could
cause systemic failure if they go down from Citi’s other high-risk
undertakings? For example, their trading activities?
Mr. ALLISON. Yeah. Well, as you know, there is the Volker rule
that is being discussed today——
Chair WARREN. Well, you’re talking to me about the future. And
the future you’re talking about is one that puts it back on Congress
to change the laws——
Mr. ALLISON. Let me——
Chair WARREN. I’m in favor of that, Mr. Assistant Secretary.
Mr. ALLISON. Yes.
Chair WARREN. But we have to survive day-to-day and it is
Treasury who is responsible. We don’t want you back here asking
for money.
Mr. ALLISON. Chair Warren, we totally share your concerns. And
that is why we are advocating that reform be initiated and passed
as rapidly as possible.
Chair WARREN. I’m going to do this one more time.
Mr. ALLISON. Please do.
Chair WARREN. Please don’t tell me about advocating change for
the future. What I’d like to know is what are you doing to manage
the risks that are in front of Citi and facing the American people,
right now?
Mr. ALLISON. Well, Citi, again, is under regulatory oversight—
comprehensive regulatory oversight—and the regulators are responsible for assuring that Citi is being properly controlled and
that it has adequate capital.
Chair WARREN. Are you telling me there are no efforts to segregate the risky activities from the systemically critical activities?
Mr. ALLISON. We are not involved in managing Citi on day-to-day
basis. And the regulators oversee Citigroup, I think that’s a question you might ask Mr. Pandit when he comes here, shortly——
Chair WARREN. Good idea.
Mr. ALLISON [continuing]. Finish.
Chair WARREN. All right, thank you.
I apologize to my panelists for going over.
Mr. Atkins.
Mr. ATKINS. Thank you very much.

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I just have a couple more questions, here. One with respect to—
there was an interesting article by Reuters yesterday about a small
Midwestern bank called Midwest Bank Holdings—this is a little bit
off-topic, but it will get back to on-topic in a second. I just want
to read it here: ‘‘The small Midwestern bank has negotiated with
the U.S. Treasury for the taxpayers to essentially buy the bank’s
shares at an above-market value price in an unusual transaction
reflecting how the government’s bank investments are entering a
new phase. Midwest Bank Holdings agreed to swap $84.8 million
of preferred shares that it sold to the U.S. government in 2008 for
securities that will convert to about only $15.5 million of common
shares, roughly an 80 percent loss to taxpayers.’’ And it quotes
hedge fund managers; there’s a lot of funny stuff going on, here.
In Section 101 of ESSA, it basically says that, ‘‘The Secretary
shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program, including
by preventing the sale of a troubled asset to the Secretary at a
higher price than what the seller paid to purchase the asset.’’ So,
I was wondering if you can elucidate us with respect to this particular transaction. Does this portend a change with respect to
Treasury’s view of the assets that it holds under TARP as they remain?
Mr. ALLISON. As we looked at the situation of Midwest Bank, we
determined that the best way to protect the taxpayers’ investment
would be to convert our position into mandatory convertible preferred on the condition that the bank raise additional capital—a
substantial amount of additional capital from public sources. So,
this is all about protecting the taxpayers’ interests and preventing,
we hope, further erosion in our position with that bank.
Mr. ATKINS. Okay, so again, I know you said that you can’t really
speculate with respect to Citi, and again, we have a huge interest
in that particular company and a huge number of shares are outstanding. So, you might consider other sorts of situations like this
that might convert what we currently hold into other sorts of security interests in the company?
Mr. ALLISON. Well, our interests are protecting taxpayers and
their investments. And there may be situations where we will look
at what we might do in the way of protecting ourselves through a
structured recapitalization that we might participate in, but in
each one of these cases, we’re guided by what’s in the taxpayers’
interests.
Mr. ATKINS. Okay, so that gets me back to some of the other
things that the Administration is doing and whether or not that’s
really in the best interest of the taxpayers and the shareholders in
this case, of Citigroup. And you mentioned, the so-called Volker
Rule—which I guess I saw a report that formal language was sent
up to the Hill today—what effect will that have on my interest as
a taxpayer in Citi as a shareholder, or elected shareholder, at that,
to the profitability of Citigroup and its businesses?
Mr. ALLISON. Well, again, I think that’s a question better asked
to the CEO of Citigroup and again, I cannot comment on potential
impacts on the company in which we hold a large investment.
Mr. ATKINS. Okay, well it seems to me that the government’s giving with one hand and taking with another, including now, with re-

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spect to the resolution authority that you were talking about, the
Administration—and you note this in your testimony—that, ‘‘The
Administration’s proposals provide this resolution authority subject
to strict governance and control procedures with losses absorbed,
not by taxpayers, but by equity holders, unsecured creditors and,
if necessary, through a fee on other major financial institutions,
similar to the Financial Crisis Responsibility Fee.’’
So, first of all, aren’t proposals like these actually putting additional costs and burdens on banks at a time when ensuring that
banks are sufficiently capitalized should be priority one?
Mr. ALLISON. Well, we think that these measures are called for
given the circumstances that the taxpayers have faced. We, by the
way, intend as the Secretary of the Treasury has announced, to get
back every penny that we have invested through TARP, and the Financial Crisis Responsibility Fee is one way of doing that.
We would also point out that many of these institutions have
paid very large bonuses. They can afford, we think, to reimburse
the taxpayer.
Mr. ATKINS. Well, unfortunately, they also have to run a business, as well. But, anyway, my time is up. We’ll get into that later,
thank you.
Chair WARREN. Thank you, Mr. Atkins.
Mr. Silvers.
Mr. SILVERS. It might be helpful, Mr. Assistant Secretary, if we
try to clarify what the taxpayers’ interest is, here, in light of my
colleague’s question.
First, let me turn to what may be a painful subject, do you agree
that Citigroup today is a systemically significant institution?
Mr. ALLISON. Again, Mr. Silvers, with all respect, we cannot comment on a judgment about whether they’re systemically significant.
Mr. SILVERS. But you agree that they were systemically significant in fall of 2008, though?
Mr. ALLISON. The determination was made at that time that they
were systemically significant.
Mr. SILVERS. I see. Your written testimony appears—you’re not
going to answer that question frontally, I’m going to infer from
your written testimony that you believe that. If you wish to tell me
that you don’t, that’s fine. But let’s start with that.
It would appear to me that the United States—as has been frequently noted—is a 27 percent common stockholder in Citigroup
and that that’s a significant financial interest of the public at this
point. I assume you agree with that?
Mr. ALLISON. I do.
Mr. SILVERS. All right.
It would also appear that there was at least a significant probability, based on historical events that we are some sort of guarantor of Citigroup’s obligations, in light of the fact—I think that we
agree—that we did not allow Citigroup to default on those obligations multiple times in the past, and most recently a year or so
ago.
You’re free to disagree with me, I don’t expect you to confirm
what I just said.
Mr. ALLISON. Well, we did guarantee a part of their assets for
a period of time and we were well-compensated for doing that.

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Mr. SILVERS. Right. I’m suggesting that we have a broader,
somewhat ill-defined guarantee. Certainly the credit markets, or at
least credit market analysts, believe that to be the case.
So, we’re not in the position, as my colleague would appear to
suggest, of being simply a stockholder in Citigroup.
And then, finally, if we believe that there is, at least, a possibility that Citigroup will turn out to be systemically significant
today, as it was in 2008, there’s an even larger interest at play,
here. Would you disagree that that’s, at least, a possibility? That
there is a systemic interest, here, that the taxpayer has?
Mr. ALLISON. Well, first of all, let me say again that the purpose
of the regulatory reform initiative is to assure that no institution
could infer, or the public can infer, that there’s some type of implicit guarantee of a financial institution by the U.S. government.
We want to remove that possibility.
Mr. SILVERS. But as our chair has commented, unfortunately—
I think you and I agree—unfortunately, this reform has not passed,
and today we live in a ‘‘reformless’’ world.
Mr. ALLISON. Yes.
Mr. SILVERS. And, I gather, at least one of my colleagues would
prefer to keep it that way, that we live in a ‘‘reformless’’ world.
But, that’s how Treasury has to function in that arena.
It seems like the public has three interests at play at Citi. My
question to you is, what strategy does Treasury pursue in the light
of these three, somewhat conflicting, interests?
Mr. ALLISON. Well, again, our strategy as a shareholder in
Citigroup is, first of all, to dispose of our investment as rapidly as
we can in a responsible way.
Second, not to get involved in the management of the company.
We don’t believe that is in the shareholders’ interests, or in Treasury’s interests. We are casting our involvement very narrowly as
a voting shareholder, and voting only on certain items in a proxy
statement.
So, we think that the best thing that we can do is two-fold: one,
exit that investment as rapidly as we responsibly can, and second,
push hard for financial reform—let me say it again—to make sure
that the U.S. taxpayer is never again put in a situation like we
face today with Treasury owning 27 percent of Citigroup.
Mr. SILVERS. Can I turn to a different matter, then, as my time
is about to run out?
I alluded in my opening statement to the fact that common stockholders of Citigroup have been, over time, diluted.
Mr. ALLISON. Yes.
Mr. SILVERS. And largely as a result of actions taken by this Administration over the last 12 months, although not exclusively—
there was a little bit of dilution involved in the initial, suspect
transaction. However, it appears to me that there’s substantial differences, nonetheless, between AIG—what I find to be the inevitable comparison in terms of a systemically significant failing institution—the dilution there, and the dilution in Citigroup. And I
would like to ask you to provide us with your comparative analysis
of the dilution in the two scenarios, and in particular, your analysis
of the effect of the difference between what happened in AIG,
where the Treasury came in with debt financing, entirely, senior to

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the common stockholders and then took a large common position
through warrants, and the Citi situation in which preferred stockholders were converted into common, and thus, essentially more
cash was put in pari passu with the common? Obviously, I’m not
asking you to answer that question now, but I’d like an apples-toapples comparison of the dilution in the two firms as of today.
Mr. ALLISON. Well, first of all, AIG received assistance in the fall
of 2008. The Federal Reserve actually made the bulk of that investment, and the Federal Reserve owns preferred shares, voting
shares, that control about 80 percent of the voting rights, in my understanding.
And Citi, on the other hand, we made these preferred investments in Citi, as you well know, and we had an exchange last summer as part of a number of exchanges of preferred for common that
were done at the time to bolster Citi’s tangible common equity
ratio.
So——
Chair WARREN. Let me stop you there, Mr. Allison.
Mr. ALLISON. Yes.
Chair WARREN. We’ll come back to this——
Mr. ALLISON. Fine.
Chair WARREN [continuing]. And we’ll permit—we’ll keep the
record open so that you can add more detail on this.
Mr. ALLISON. Thank you.
Chair WARREN. Thank you. I just want to be disciplined about
time.
Mr. McWatters.
Mr. MCWATTERS. Thank you.
Mr. Assistant Secretary, during calendar year 2009, did TARP
recipients sell any mortgage-backed securities to either the Fed,
the Treasury, or Fannie or Freddie?
Mr. ALLISON. I don’t have an exact answer for that, Mr.
McWatters, I’d be happy to get it for you.
Mr. MCWATTERS. If you’d look into that, and also look into——
Mr. ALLISON. Sure.
Mr. MCWATTERS [continuing]. The price that was paid?
Mr. ALLISON. Alright.
Mr. MCWATTERS. Was it fair market value at the time? Was it
par or something in excess of fair market value, is what I’m interested in knowing.
Mr. ALLISON. Okay.
Mr. MCWATTERS. What actions has Citi taken again, specifically,
to negate the too big to fail problem? So we’re not having this discussion again in five years?
Mr. ALLISON. Well, may I respectfully ask that you pose that
question to Mr. Pandit, who is the CEO? I think he’s in a better
position than I to describe the actions they’re taking internally.
Mr. MCWATTERS. I know, but I suspect that you talk with him
on occasion?
Mr. ALLISON. Actually, I have not talked to Mr. Pandit about this
matter, no.
Mr. MCWATTERS. Okay. How did Citi employ the $45 billion of
taxpayer funds?

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Mr. ALLISON. Those funds were for general corporate purposes—
they were part of the capital of Citigroup. That entire program was
designed to provide additional capital to banks.
Mr. MCWATTERS. Okay. Does Citi use its retail or commercial
bank deposits to finance proprietary trading activity?
Mr. ALLISON. Again, I’d ask you to direct that question to Mr.
Pandit. I don’t have that information.
Mr. MCWATTERS. But this has been alleged as one of the causes
of the financial crisis, and so it’s not a question you’ve asked?
Mr. ALLISON. No, it’s not.
Mr. MCWATTERS. Okay.
Do you have a view as to how the activity of short-sellers in the
last quarter of 2008 affected the financial crisis and affected
Citigroup?
Mr. ALLISON. I don’t have that information, sir.
Mr. MCWATTERS. Okay.
Any views as to how the mark-to-market accounting rules, particularly how they were revised in April of 2009, affected
Citigroup’s financial reporting?
Mr. ALLISON. Again, I think you’d have to ask the CEO.
Mr. MCWATTERS. So, these are questions you’ve just not thought
about or not—even though these are not obscure questions about
short sellers and mark-to-market and the like?
Mr. ALLISON. Yes. The role of my area in Treasury is to manage
the taxpayers’ investments and to retrieve those investments as
rapidly as we responsibly can.
Mr. MCWATTERS. Okay.
I can anticipate the response to this question. It has been alleged
that Goldman Sachs, among others, sold collateralized debt obligations to investors, while at the same time betting against—or selling short—those same securities. Are you aware that Citi is engaged in any of that activity?
Mr. ALLISON. I’m not.
Mr. MCWATTERS. Okay.
What is your view about the effect the implicit guarantee from
the taxpayers has had on the competitors of Citigroup?
Mr. ALLISON. Well, let me say, again, there is no guarantee,
today, of Citigroup or any part of Citigroup on the part of the U.S.
government.
Mr. MCWATTERS. Well, I said implicit guarantee, not explicit.
Mr. ALLISON. Well, I’m not sure I can comment on what ‘‘implicit
guarantee’’ means. I’m trying to be as precise as I can.
Mr. MCWATTERS. Okay, fair enough. But, so as far as you know,
it has had no effect on competitors that—let me ask you this way,
is Citi, today, too big to fail? If the answer is, ‘‘No, it can fail and
be liquidated,’’ then I would say it would have no effect on competitors. But, I mean, is Citi too big to fail today?
Mr. ALLISON. Again, as I’ve testified and as I’ve said before, I
can’t comment on the condition of Citigroup since the U.S. Treasury is a major holder of their shares.
Mr. MCWATTERS. Okay, my time is nearing the end, so I will
stop there.
Chair WARREN. Thank you, Mr. McWatters.
Superintendent Neiman.

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Mr. NEIMAN. Thank you.
I intend to ask Mr. Pandit about their progress in preventing
foreclosures. I’m going to be particularly interested in their modification process and particularly around conversions from trial
modifications to permanent modifications. And I think this is more
than just a process question. I think some people tend to forget
that the reason we are in this financial crisis is because of the foreclosure crisis. And until we solve the housing and foreclosure crisis,
we will never be assured of financial stability. So, I think it is an
important part of this hearing, and an important part of the TARP
program. Can you share with me your assessment of Citi’s performance under the HAMP program?
Mr. ALLISON. Yes, sir. Like other banks, we think they got off to
a pretty slow start. They have picked up speed, actually Citi has
today offered trial modifications or made final modifications to
about 60 percent of the eligible mortgages in its portfolio which, I
believe, ranks it number one in terms of their progress. Nonetheless, they still have a long way to go. And we are actively involved
with Citi and the other major banks which hold the bulk of these
mortgages to make sure that they are reviewing those portfolios,
identifying eligible homeowners and offering them trial modifications and final modifications as soon as possible.
I should also point out that, today there are about 1.7 million
people, we estimate, who are eligible for modifications under the
HAMP program, and the servicers have extended offers to about
1.3 million, there are over 1 million trial modifications in place
today that are saving homeowners over $500 a month.
Mr. NEIMAN. So, thank you for raising that, because due to the
Treasury’s extension of that 3-month period by which borrowers
have to make payments before they are converted from a trial
modification to a permanent modification, that extension expired at
the end of January. So, we are anxiously all awaiting the numbers
that could even approach a half a million individuals who we are
awaiting to see whether they were offered a permanent modification, whereas if they were denied, what is the result of that appeal
process? Any expectations of what we may hear from Citi? And I
certainly intend to ask Citi——
Mr. ALLISON. Yes.
Mr. NEIMAN. And if you can’t answer that——
Mr. ALLISON. Yes.
Mr. NEIMAN. Can you give us some idea—we expect that this
data will come out in the next week or so, if you can give us some
idea of what our expectations may be with respect to that data?
Mr. ALLISON. Well, again, we’re looking forward to the release of
the monthly data for January—I’m sorry, February—and there was
progress being made in the trial modifications, considerable
progress. And this will be taking place in the weeks to come, as
well, and also there are rights for homeowners who are denied to
appeal their denials, as well. So, we tried to make this program as
simple today, as transparent as possible. We have been working
very closely with the leading servicers, especially, to assure that
they are moving as expeditiously as they can, and they have the
resources, also, to make decisions as rapidly as possible. We know

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these homeowners are waiting. In the meantime, though, they’re
still saving an average of over $500 a month and we are——
Mr. NEIMAN. To the extent that they are denied a permanent
mortgage conversion, there’s a question of whether they would
have been better off pursuing another alternative, whether shortsale and looking to rent, as opposed to staying in a trial modification for three, four, five, six months.
Mr. ALLISON. Yes.
Mr. NEIMAN. I do want to—because in recognition of the challenges in converting and those low conversion rates, you have announced a new system starting June 1.
Mr. ALLISON. Yes.
Mr. NEIMAN. One that would require documentation up front.
And I think there are certain benefits to that. But do we run a risk
of shifting the problem? Yes, we will have higher conversions, but
will we have fewer people entering the process unless we really
modify those documentation requirements?
Mr. ALLISON. I think that’s a good question, it’s one we’d be concerned about, as well. And that’s why we’ve tried to simplify the
documentation requirements and also, we provide the documents
that a homeowner may need, on our website, as well as voluminous
information about how to apply, how to go through the process,
how to make appeals——
Mr. NEIMAN. And March 1 was the date, I think, we were previously given about having that web portal up and running so borrowers can identify—can you give me an update on the status of
expanding that? I think we were told earlier that there were going
to be over 100 servicers participating by March 1?
Mr. ALLISON. I don’t have the exact number of servicers that are
participating, but that program has been moving ahead very rapidly, and we’ll continue to make enhancements to that website
going forward. And I would also point out, we’ve had millions of
people access the website.
Also, let me mention, we’re working closely with counselors
around the country and holding events throughout the country to
bring people in who may be eligible for this program and help them
have their mortgages modified as rapidly as possible.
Mr. NEIMAN. Well, we look forward to the reports, and in your
efforts at transparency, understanding clearly how those individuals were treated.
Mr. ALLISON. Right.
Mr. NEIMAN. Thank you.
Mr. ALLISON. Thank you.
Chair WARREN. Thank you, Mr. Assistant Secretary.
I have one last question on behalf of the entire panel, and that
is, are you saying today that no one in Treasury monitors the financial condition of Citi and that no one in Treasury is trying to
manage the systemic risk that Citi poses? Or, are you saying that’s
just not your job?
Mr. ALLISON. We do look at, obviously, public information about
Citigroup.
Chair WARREN. You don’t have any private conversations with
Citi?
Mr. ALLISON. I personally have not had——

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Chair WARREN. Or request additional information from them?
Mr. ALLISON. I think that there have been conversations with
Citigroup over time. I, myself, have not had conversations with
Citigroup management about the condition of the company and
with the CEO about that subject.
Chair WARREN. So, are you telling me—that was my question.
Mr. ALLISON. Yes.
Chair WARREN. That no one in Treasury is systematically observing and monitoring the financial condition——
Mr. ALLISON. No, no, no——
Chair WARREN [continuing]. Of Citi?
Mr. ALLISON. Citi does visit with us from time to time and provide updates on their situation.
Chair WARREN. So, I’m still trying to understand.
Mr. ALLISON. Yes.
Chair WARREN. So, that means we just had the wrong witness
here today? There were other people within Treasury who are engaged in these jobs? It’s just not your job?
Mr. ALLISON. I participated in briefings in the past on Citigroup’s
situation. We do have conversations with Citigroup about their situation, yes, that is true.
Chair WARREN. All right. I appreciate it.
Thank you, Mr. Assistant Secretary. I invite you to stay for the
next panel and——
Mr. ALLISON. Thank you very much.
Chair WARREN.—Hear from Mr. Pandit.
Mr. ALLISON. Thank you.
Chair WARREN. Thank you. The witness is excused.
[The responses of Assistant Secretary Allison to questions for the
record from the Congressional Oversight Panel follow:]

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55
Chair WARREN. Mr. Pandit? Mr. Pandit? Gentlemen, if you could
excuse us.
Mr. Pandit, thank you for coming today, the Chair recognizes you
for five minutes if you’d like to make an opening statement. I’d ask
you to hold it to five minutes, we will put your written statement
in the record, whatever its length.
Mr. Pandit, please.

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STATEMENT OF VIKRAM PANDIT, CHIEF EXECUTIVE OFFICER,
CITIGROUP INC.

Mr. PANDIT. Thank you, Chair Warren and members of the
Panel. Thank you for inviting me here.
Citigroup today is a fundamentally different company from what
we inherited two years ago. Citigroup is now operating on a very
strong foundation to generate sustained profitability for the benefit
of all our stakeholders.
For us, as for many other institutions, the bridge to the other
side to a sound footing came from the American people, and I want
to thank our country for providing Citi with TARP funding.
Last year, we repaid $20 billion of the TARP investment. In addition, we paid the government $3 billion in dividends and another
$5.3 billion in premiums on the Asset Guarantee Program that we
have now exited.
Taxpayers still hold 27 percent of Citi’s common stock, and we
look forward to helping them make money on that investment. Citi
owes a large debt of gratitude to the American taxpayers.
We have renewed our financial strength, we have overhauled
risk management, reduced our risk exposures, defined a clear strategy and we have made Citi a more focused enterprise. At the end
of 2009, we were one of the best-capitalized banks in the world,
with a Tier One ratio of 11.7 percent, a Tier One Common ratio of
9.6 percent and $36 billion of reserves. Our leverage is 12 to 1,
down from 18 to 1 when I became CEO. We have cut the size of
our balance sheet by 21 percent from its peak, by half a trillion dollars, and our riskiest assets have been substantially reduced. Citi’s
cash liquidity is now a strong $193 billion, and we have reduced
operating costs by more than $13 billion per year.
Perhaps the most important strategic action that we’ve taken is
to mandate a return to basics, return to banking as the core of our
business, and as a result we’ve sold more than 30 businesses and
substantially scaled back proprietary trading. Citi is a better bank
today, but for Citi, being better is not good enough. Our customers
and America’s taxpayers need a different road map.
First, a lot still needs to be done to promote economic recovery,
particularly in the housing area. Since 2007, Citi has helped
824,000 families in their efforts to avoid foreclosure, total loss mitigation solutions increased by 50 percent versus 2008, and we remain number one in active HAMP modifications.
In 2009, Citi originated $80 billion in mortgages and provided
$80 billion of credit card lending. And in addition, our company
used TARP funds specifically to support new lending to individuals,
to families, to communities and businesses. Taxpayers have a right
to know how we put that money to use, and we were the only bank
to publish regular reports on the use of TARP capital.

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Second, Citi supports reform of the financial regulatory system.
America and our trading partners need smart, common-sense regulation to reduce the risk of bank failures, mortgages foreclosures,
lost GDP and taxpayer bailouts.
And I know these are issues that are being debated right now,
but let me share with you three areas that I think are important.
First, financial institution reform. Let’s address too big to fail
once and for all through the creation of a systemic risk regulator
and a resolution authority, by making sure banks are banks, focused on clients.
Second, market reforms. Let’s level the playing field with common standards across the entire financial sector. Let’s create transparency, particularly in the derivatives markets with the use of
standardization and clearing houses.
And third, consumer reforms. We support the need for a strong
consumer authority that is part of the regulatory system to promote greater transparency, sound practices, growth and stability in
the consumer credit market. Banks, and non-banks, need to be
more responsible.
These are reforms that could be costly for the industry, but Citi
believes they are necessary.
Thank you, Chair Warren, and members of the panel, for this opportunity to review Citi’s progress.
[The prepared statement of Mr. Pandit follows:]

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Chair WARREN: Thank you very much, Mr. Pandit. Again, we appreciate your being here today.
I’d like to start with a little quote from the Emergency Economic
Stabilization Act, or TARP, as we’ve all come to know it, where
Treasury is to assure that its authority is, quote, ‘‘Used in the
manner that protects home values, college funds, retirement accounts and life savings, and preserves home ownership and promotes jobs and economic growth.’’ That was Congress’ statement
about why TARP was done and what Treasury is authorized to use
money to advance those specific goals.
In a June 22nd, 2009 Reuters article, you are quoted as saying,
‘‘We’ll be playing the two growth themes very clearly. One is
globalization, the other is growth in emerging markets.’’ Wilbur
Ross, this morning, referred to Citi as, essentially, a foreign bank.
So, the question is, why should the U.S. taxpayer alone, carry Citi?
Mr. PANDIT. Madame Chair, we’re not a foreign bank, we’re a
global bank. We’re actually America’s global bank. We started in
business years ago helping America’s businesses export their products and that’s what we’ve been doing. And this particular time, as
we need growth, as we need jobs, it’s even more important that we
help small businesses, medium businesses and large business make
those exports.
As we do that, we need operations on the ground and in many
of these operations we raise deposits to help large companies in the
U.S. get the loans on the ground they need, and as well, some of
those deposits help us facilitate loans in the U.S. market.
Chair WARREN. But you describe your growth as globalization
and growth in emerging markets. These are your words about
where you plan to expand your activities.
Mr. PANDIT. We are completely focused on making sure that we
continue our lending to U.S. customers, making sure we’re helping
our clients and our customers through the issues they are facing.
Now, it’s also very clear that our clients are coming to us—small
clients, middle-sized clients—they want to tap foreign consumer
bases. The growth is coming from the foreign consumer, they believe that’s how they will grow, that’s how they create jobs, and
that’s what I meant. We want to make sure we support the businesses in America to get to the other side.
Chair WARREN. Well, good. So let me get some data, then, on
what’s happening. How much does Citi lend to U.S. enterprises for
U.S. operations?
Mr. PANDIT. Our total loans outstanding for all U.S. business is
about $450 billion.
Chair WARREN. Can I shrink that up? It’s not all U.S. businesses.
The question I wanted to ask about is U.S. enterprises for U.S. operations—jobs in America.
Mr. PANDIT. I think the number is $450 billion lent in the U.S.
Chair WARREN. Can you divide that into how much you lend to
businesses that don’t have any foreign operations?
Mr. PANDIT. Madame Chair, I can’t do that, but I can get back
to you with that information.
Chair WARREN. Okay, that’s fair.

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So, can I ask one other question about just the lending that you
do. What lending and other transactions has Citi participated in,
involving the government of Greece?
Mr. PANDIT. We do business with a lot of sovereign countries who
need our global expertise, including coming to the U.S. markets,
and so I know we’ve been doing business with Greece, but I don’t
have the details with me.
Chair WARREN. Do you know how much debt from the government of Greece that Citi holds?
Mr. PANDIT. I don’t know the exact number, but I know it’s not
a large amount, not a meaningful amount in our entire operations.
Chair WARREN. Okay, not a meaningful amount?
Mr. PANDIT. Yes.
Chair WARREN. Okay, good. That’s fine.
Mr. Atkins.
Mr. ATKINS. Well, thank you, Madame Chair.
Thank you very much, Mr. Pandit, for being here today, it’s a
pleasure to have you take time out from your busy schedule to be
here.
I asked this of Assistant Secretary Allison last time, but I also
want to explore it with you, and it has to do with the offering back
in December. It seems that the timing and experience of that particular offering is something that we’d not like to repeat, and obviously the taxpayer, now, is the largest single shareholder of
Citigroup.
So, as an executive with a background in equity markets and experience with the capital markets, I was wondering if you could
share with us your reflections on how the Treasury Department
should think about monetizing its position in Citigroup common
stock, going forward.
Mr. PANDIT. Mr. Atkins, of course, I mean, that’s the Treasury’s
decision in terms of how they want to do it. We do know that they
would be able to sell stock after March 16th, and they’ve announced publicly they do want to sell stock over the next 12
months or so and there are lots of different methodologies of doing
it, right from selling it into the market every day, but also, we believe there’s substantial demand for this stock.
It is not a secret that the government wants to sell. It’s not a
secret that the stock price in the markets today reflects the fact
that they’re a seller in a large amount, and that we believe there
are investors, here in the U.S., who are getting ready for that offering.
As to how they do it, when they do, with whom they do it, those
are all the Treasury’s decisions.
Mr. ATKINS. Well, when you look back at the offering in December, clearly it was a primary offering and then, trying to be coordinated with a potential large secondary offering by the government.
So, as far as the interest goes in the marketplace, was there a large
cover issue for that offering at the time? Or what exactly was the
problem that we saw in December?
Mr. PANDIT. Mr. Atkins, that was the largest common stock offering ever done in the U.S.
Mr. ATKINS. Right.

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Mr. PANDIT. And particularly when you consider that as the percentage of Citi’s common stock outstanding, it was extremely large.
And don’t forget, that was done in the face of the market knowing the government was going to sell its 27 percent in the not-toodistant future. So, they had a choice—do I buy now? Do I buy
later? That’s the background—it was late in the year in doing that
offering, and, by the way, when we did that offering, unfortunately
another bank decided they wanted to do a large offering right in
the middle of what we were doing.
But we got it done. And we got it done as the largest offering,
and we were able to pay back the taxpayers, and we were able to
exit the guarantee program; I consider that to be a success.
Mr. ATKINS. Okay, now looking forward to, you have those stock
prices, about $3 a share, or so, which puts it in a special zone as
far as some institutions and the way the market views them. What
are your plans to address the price of the stock in relation to the
huge amount—I mean you now have the the largest number of
shares outstanding of any New York Stock Exchange-listed company?
Mr. PANDIT. And therefore, we’re also the most traded stock, on
many days in the New York Stock Exchange. By the way, the
stock, last I checked was $3.44.
Mr. ATKINS. Okay, sorry about that.
Mr. PANDIT. I think, at the end of the day stock prices are important, but what’s really important is performance. What do you
earn? Sustained profitability—which is really what I’m focused on.
My biggest job is to make sure we make money on a sustained
basis, and therefore, help the government make money.
Mr. ATKINS. Well, in your testimony, you mention that you’ve
sold out of Citi Holdings after having restructured your firm versus
the non-core businesses of about 30-some-odd businesses in here, I
think it said more than 20. So, how did you decide as far as what
is core versus what’s not core?
Mr. PANDIT. And that was job number one for me, coming into
Citi, looking at the businesses, trying to figure out, ‘‘What business
are we in? What clients do we serve? What are we good at?’’ And
you put all of those things together, it turned out at the end of the
day, we are a great bank that is basically in the business of helping
people manage their accounts—providing them loans, providing
them capital, providing them investment services.
And it became very clear that we were in a lot of businesses that
were not directly related to being a bank. And so, the fundamental
decision that I made is that, we’re going to be a bank. We’re going
to be the global bank for America’s companies, serving them here,
but also wherever they want to go, but not only for companies, but
the same capability should be available to individuals, as well. So,
that’s the decision we made. And on the basis of that, it became
very clear what was not core—and it was a large part of the company and that’s what I’ve been selling, very systematically, over
the last two years.
Mr. ATKINS. I see.
My time is up, thank you.
Chair WARREN. Mr. Silvers.
Mr. SILVERS. Yes, thank you, Chair.

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Again, Mr. Pandit, I want to thank you for being here and express my appreciation both for your presence and your testimony.
You said a moment or so ago that in trying to focus on what
Citigroup is good at that you viewed a return to core banking as
the primary direction you were headed. And you mentioned some
numbers on loans.
I have here a report I’m sure you’re familiar with from Standard
& Poor’s from last month that shows—and the numbers don’t
match, so I wonder if you could explain it to me.
It shows that commercial and corporate loans by Citigroup have
fallen dramatically over the last two years: From a level, according
to S&P, of $206 billion at the year-end 2007, to $127 billion today,
or the end of third quarter, I believe, 2009, I don’t think they had
the fourth quarter numbers at that time.
In view of my understanding that your divestitures have been
largely unrelated to commercial loans, can you explain to me
what’s happening, here?
Mr. PANDIT. Sure, Mr. Silvers. When we decided what was core
and what’s not, there were also assets that were part of what was
not core to us, as well. There were either clients that we shouldn’t
be serving, or they didn’t need us, or there were businesses that
were not core to us, there were assets that were gathered through
core businesses. And so, those numbers reflect selling businesses
that are not core to us, selling assets that were not core to us, taking any marks on assets that were not core to us. Let me reassure
you, as well——
Mr. SILVERS. But, Mr. Pandit, I don’t understand how you can
reconcile the scale of that retreat from business lending which is,
after all, in my view, just absolutely central to whether or not
TARP is succeeding—the scale of that retreat from business lending with your characterization of a re-focusing on core banking. Because I look at other numbers, I don’t see that type of retreat from
other types of activity, other than obviously things that you’re totally divesting from.
Mr. PANDIT. Let me assure you, we will make any good loan that
we see to a client. The regulators want us to make prudent loans,
we are doing that. Some of those were leveraged loans. They were
part of practices that we shouldn’t have been a part of because they
are not core to the banking mission. So, it’s very easy to look at
those numbers and think that they actually represent our lending
appetite, or our appetite to serve clients, but that isn’t so. That reflects the narrowing and focusing of our businesses to what we
should be as a bank.
Mr. SILVERS. Second question about this type of issue. In the
area of commercial real estate, which has been a concern of this
panel, again, the data suggests a kind of flatline, in terms of the
total assets in commercial real estate at the holding company level
portfolio—of around $75–$80 billion. My question about that is,
have you taken any write-downs in commercial real estate? And
how do I understand this flat level and are write-downs coming?
Mr. PANDIT. A number of things. One, a lot of that portfolio is
mark-to-market, we have taken write-downs. Much of that portfolio
is community lending, and that’s money good, as well. There are

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some accrual loans that we’ve made and those loans are well-reserved against.
Let me also say that most of our loans are for office buildings,
against leases in some of the major metropolitan areas, so that is
a very well-scrubbed over portfolio.
I’ll make one more point on this, which is that commercial real
estate is less of an issue for Citi.
Mr. SILVERS. Okay.
Can I turn to another question about your core strategy and I
think my time is going to expire. As I understand it, correct me if
I’m wrong, you’ve been telling the world that you are going to be
focused on, in addition to what might be described as really oldfashioned banking, and two other areas, that you’re going to have
a significant capital market with a broad exposure to global markets, derivative currencies, and the like, and that you’re going to
be continuing to put focus on your global transactions services business, which has been the sort of consistent profit driver over the
last year. Am I reading back to you correctly?
Mr. PANDIT. That’s correct, Mr. Silvers.
Mr. SILVERS. We heard, I think, a fair amount about the extent
to which the GTS (Global Transaction Services) business makes
Citi particularly systemically significant, and it’s my understanding
from press accounts that this was a core argument Citi made to the
government during November of 2008, that Citi could not be allowed to fail because of the importance of that business to the global capital markets. My question to you is, can you justify having
that business connected to the type of capital markets desk you intend to keep connecting it to in light of what appears to be taking
something so systemically important, and then tying it to something so relatively risky?
Mr. PANDIT. Let me start by saying, I don’t recall making that
statement to anybody, nor does any—nor do I recall anybody who
directly works for me making that statement.
Mr. SILVERS. Which statement, sir?
Mr. PANDIT. The statement you said about the fact that this was
the argument that we made to the government, about systemic
safety.
Mr. SILVERS. Okay, well then, let me ask you this, would you
commit here that as long as you’re at Citigroup that you will not
come to the government in the future and make the argument that
the GTS business requires being bailed out, should your other businesses go south?
Mr. PANDIT. Yes.
Mr. SILVERS. Let me commend you for giving me a straight answer. It’s a rare experience in my role.
Mr. PANDIT. Well, I think that’s why we’re here, Mr. Silvers, for
straight answers. I want you to hear from me what we’re doing at
Citi and why we’re doing the right things.
Mr. SILVERS. But, if my colleagues will indulge me, please explain, nonetheless, how those two businesses are compatible, in
your view?
Mr. PANDIT. Let me explain this to you. We do business for Coke
and Pepsi. Coke is in 450 countries around the world. They need
to manage their operations, we do everything for them from cash

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management, to custody, to clearing and settling for them. They
need foreign exchange management, they need liability management, they need interest rate management, so we have to have
those operations to serve them in that particular way.
The fundamental shift that I made was to make sure that our
clearing operations and our cash management operations and all of
our banking operations are geared towards doing those things that
our clients need. And, by the way, if you do that correctly—having
been in the business for as long as I have—those are the kind of
businesses that generate good value for clients without creating the
risk that has been created in the system, historically.
Mr. SILVERS. My time is way over.
Thank you.
Chair WARREN. Oh my goodness. Thank you, I apologize.
Mr. McWatters.
Mr. MCWATTERS. Thank you.
And thank you, Mr. Pandit, for appearing today. I appreciate it
very much. Do you have any reason to anticipate that Citigroup
will need additional TARP funds?
Mr. PANDIT. No.
Mr. MCWATTERS. Great.
On a fair market value basis, after considering contingent liabilities, is Citigroup solvent?
Mr. PANDIT. Yes.
Mr. MCWATTERS. Are any material divisions or subsidiaries of
Citigroup insolvent?
Mr. PANDIT. No.
Mr. MCWATTERS. Let me be very clear——
Mr. PANDIT [continuing]. We look at the entire company.
Mr. MCWATTERS. I understand.
Mr. PANDIT. What matters is that we’re well-capitalized, we have
the reserves, we have the liquidity and by the way, we stress test
ourselves very often to make sure that’s always the case.
Mr. MCWATTERS. Okay, speaking of stress testing, if the stress
tests were conducted again today under current economic conditions, would Citigroup be required to raise additional capital? And,
if so, how much do you think?
Mr. PANDIT. No, no.
Mr. MCWATTERS. Okay.
Could you tell us why, specifically, Citigroup needed a TARPfunded bailout? What happened, what went wrong?
Mr. PANDIT. Mr. McWatters, we came into this market—Citi
came into this market with assets on which it took substantial
losses in 2008. Now, we addressed that by raising $48 billion of
capital in the market in early 2008, we sold another set of businesses to raise $10 billion in capital and we got $25 billion from
the government in the first TARP round.
And, the result of all of that was that we have 10.7 percent Tier
1 and at the same time, we had reduced our assets, we had reduced risks—fundamentally, we were in the right place, and in any
rational market, that would be a solid balance sheet for the future,
but we were not in a rational market. Post Lehman Brothers, postWachovia breakup, the capital markets froze, there was a general
sense of concern about where the economies might go, about where

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unemployment might go and different stocks of different banks
started reacting to that, our stocks started going down in late 2008.
And so on that Friday, in late November, our stock was at $3.37.
Now, in a market of that sort, unfortunately sometimes stock
prices can have an impact on confidence on all sorts of stakeholders
that are out there, and rather than taking the risk, as we talked
to the Federal Reserve, as we talked to the Treasury, the view was,
‘‘Let’s take that issue off the table.’’ That’s what happened.
Mr. MCWATTERS. Okay.
What actions have you taken to negate your status as ‘‘too big
to fail’’? I mean, how can we get to a point, realistically, or if this
happens again, where Citi is simply broken up, sold off or recapitalized by the private sector without government intervention?
Mr. PANDIT. We have taken a number of steps, Mr. McWatters
to, first of all, it starts with capital. We have a very strong capital
base, very strong liquidity, very strong reserves. That’s the starting
point on this.
The second part is, create earnings, which is why we took $13
billion of cost out of there.
The third part of that is change your risk profile, and we’ve done
that. Now, we still have some legacy assets, so you came in with
a group of assets into this environment, but we have changed that,
as well. We manage our regional businesses on the basis of cash
on the ground, liquidity on the ground, we work with our global
regulators, so we’ve made significant changes in the financial
health of the company, we’ve made significant changes in the risk
management of the company, but we’ve also targeted the company
towards those businesses that have clients, and really don’t, necessarily, create the risk that has been created in the past.
But, let me also say, I do think we need regulation, which is why
I said in my opening statement, let’s get to that resolution authority, so that this never happens again.
Mr. MCWATTERS. Okay, one more quick question. You are a veteran of the Capital Purchase Program. What advice can you give
for how that program can be improved? It’s ongoing, I mean,
there’s money out the door, not every institution has repaid TARP
funds. How can it be improved?
Mr. PANDIT. The TARP funds were, from what I understand, put
in place—a lot of the reason was to inject capital into the banks,
not only so they could lend, and they could do the right thing for
the American people, but it was to create a sense of confidence, so
we took the confidence in the financial system off the table, that
was the point on that.
For those people who still have TARP funds, I don’t have any
other advice but to say, step in and make sure that you manage
your business, to take the costs out of that, you need to manage
it as efficiently as possible and start creating a story and a business model that can translate into earnings. Because that’s the
best way in which the capital markets can give you equity, which
you can then use to repay the government.
Mr. MCWATTERS. Okay, thank you.
Chair WARREN. Thank you, Mr. McWatters.
Superintendent Neiman.

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Mr. NEIMAN. If you were here—and I believe you were, in the
back—when I was questioning Mr. Allison, I highlighted that the
mortgage crisis really gave rise to the financial crisis, and for that
reason I was very pleased to see in your written testimony, as well
as in your oral testimony, you referenced your efforts toward foreclosures mitigation, and in your written testimony highlighted the
fact that Citi has the highest percentage of eligible loans in active
modification, mortgage modifications, at 50 percent trial and
permanents, percentage of eligible mortgages.
And though you can be applauded for that outreach effort, I
think a more important metric is the actual conversion of trial
modifications to permanent, sustainable mortgages. I believe the
last report from Treasury has 110,000 mortgages that are in active
trial modifications.
With the extension of Treasury through January 31, we are now
awaiting results from all institutions but, I think, anxiously awaiting your results, as well, as to how those individuals were treated.
And I think the important part is, these are individuals who have
been willing and able to make these reduced payments and are
awaiting final determination, we know that there have been problems at servicers, we know there are problems in the appeal process, so can you give us any information about what we may expect
to see in the decision-making with respect to those trial modifications?
Mr. PANDIT. Mr. Neiman, I completely agree with you that attacking the issue of housing is important for the economy, but particularly for our customers, our clients, as well.
We, as the Assistant Secretary said, we’re number one in active
HAMP modifications right now, I think he stated 60 percent as the
number. Right now, the ratio of completion is about 18 percent of
that.
Mr. NEIMAN. Right.
Mr. PANDIT. We think that number is going to go up to 40 percent, maybe, pretty soon, that’s where we think it’s going to go.
And not everybody who’s gotten into that program is necessarily
going to qualify because they may not have the documentation,
they may not have the information that’s necessary to do that.
Which is why what we’ve done is create a Citi modification plan
on the other side—if you don’t qualify, and you don’t meet every
standard, we still have modification programs and plans available
for these people who are going through this particular change.
Mr. NEIMAN. Do you see documentation? Because this has been
an issue I’ve heard from other servicers. Partly, I think it’s, we’ve
heard concerns on the resources and processes of the servicers losing documentation, we’ve heard of instances of borrowers reluctant
in producing their own documentation, but I’m also very concerned
that the Treasury has not given enough discretion to servicers and
lenders to make those decisions. Have you found that? Or would
make any recommendations or changes in the HAMP documentation process?
Mr. PANDIT. Let me say, by the way, the Treasury already has
made changes, and they’re all positive changes, and these are the
kind of changes that, I think, are going to have a positive impact
on modifications, as well.

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Let me also say, we have 4,000 people that are doing this for us,
I have hired 1,400 people in the last year to make sure we can help
people get through these documentation issues. These are case-bycase issues.
Mr. NEIMAN. In your modification process, are you utilizing principal reductions, and could you share with us the percentage of
modifications that use principal reductions?
Mr. PANDIT. So, the number one goal for us to keep people in
their homes is to make those homes affordable.
Mr. NEIMAN. Right.
Mr. PANDIT. You’ve got to do that.
Mr. NEIMAN. And you can do so through a combination of interest rates and extensions or principal reduction?
Mr. PANDIT. Absolutely. It is interest rates, it is extensions on
mortgages, it is delaying amortizations of mortgages, it is changing——
Mr. NEIMAN. And would you agree that reducing the principal
would increase the likelihood of reducing the re-default rate, keeping more skin in the game for that borrower? Have you experienced, to the extent that, coming down to the same affordable payment, but including principal reduction and not just interest reduction has long-term benefit?
Mr. PANDIT. You know, what we’ve found is the most important
thing that’s driving a re-default is unemployment rates. Don’t forget, over the last year——
Mr. NEIMAN. I agree with you on that.
Mr. PANDIT [continuing]. Going in an increasing unemployment
rate. So, last year is not necessarily an indicator of re-default,
going forward.
Mr. NEIMAN. And one question before my time expires on this
subject is the issue of second liens because this has been a real disincentive that we are hearing from lenders on making, particularly,
principal reductions. Only one institution, and it was not yours,
has signed on for the Treasury’s second lien program. Can you
share with us whether you intend to join that program?
Mr. PANDIT. So, first let me tell you we are modifying second
liens, actively. We’ve been part of the FDIC program, we’ve been
part of our own programs to do exactly what you want, we’ve said
to the Treasury that we’re all willing to work with them as to what
this program is, we have just seen the details, I think it’s prudent
for us to go through that before we sign on.
Mr. NEIMAN. All right. It’s been out for awhile, I’d look for it and
hope that it is a positive response, and we’ll keep track of that.
Mr. PANDIT. Thank you.
Mr. NEIMAN. My time is expired.
Chair WARREN. Mr. Pandit, you started your testimony by saying
that Citi is a fundamentally different company from the company
of two years ago, but nonetheless, Citi continues to pose significant
systemic risk. In fact, Citi is often cited as the poster child for ‘‘too
big to fail.’’ Citi is this combination of a commercial bank, an investment bank, and an insurance company for which GlassSteagall had to be repealed so you could follow your business
model.

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I understand your response to Mr. McWatters was that we are
dealing with the problem of systemic risk and too big to fail by
making Citi a stronger company. There may be those who agree,
there may be those who disagree, but I want to focus on a different
part. Instead of that, why don’t you concentrate on breaking Citi
into more pieces, so that no one piece is too big to fail?
Why not break it up? The markets are calm, this can be done in
an orderly fashion, not in crisis, your shareholders will get all of
the value, you won’t have as big a company to run, but we will at
least reduce systemic risk.
Mr. PANDIT. And we have the same objective—shareholder value
is really important, and that’s where I’m going, so let me tell you,
we are doing that. We’re selling about 40 percent of the company.
We’re breaking it up, and that’s a huge piece. We’re not an insurance bank anymore, at all, we are primarily in the commercial, corporate banking, individual banking businesses and the business of
providing those with account management and creating services
our clients need. We’re only as big as what is required to serve our
clients in a competitive market. That’s really important.
But I completely agree with you that we, or no other institution,
should be in a place where we get to a too big to fail situation and
there are two ways of going at it. One, make sure these banks are
strong, because there are going to be a handful of systemically important institutions, sometimes size is important, sometimes just
what they do is important. And for that you need a strong risk regulator that prescribes capital requirements, stress tests, liquidity
requirements. Let’s make sure we game out every scenario and
make sure we put these institutions through that test. That is really important, by the way. Sometimes things do go wrong, so let’s
have a resolution authority, and we ask the Congress to act fast
on these.
Chair WARREN. Thank you, Mr. Pandit. I just want to make sure
I understand your response. When John Reed, who built Citi, says
that he now believes it should be broken up, you’re saying yes, that
is what I’m doing.
Mr. PANDIT. What I’m saying to you, first of all, I’ve got to go
back and see what he said. I’ve been busy managing the company,
and I’ve been managing the company with the same objective,
which is, what is the company that best serves our clients, what
business am I in, and I have been selling pieces of the company
and breaking it up, to say, this is my core business. That core business is the business that I think is going to create the maximum
value for our shareholders and therefore the government.
Chair WARREN. Thank you very much.
If I could ask another question, taking you back to September of
2008. You wrote to your colleagues at Citigroup in which you said,
‘‘Our capital and liquidity positions are strong and we have tremendous capacity to make commitments to our clients.’’ We all
know that within a matter of weeks Citi and another large financial institution were taking tens of billions of dollars under TARP.
I understand there are those who believe that this crisis was not
obvious in advance.
The part I’m still trying to understand is the second hard bump
for Citi, when the Secretary of the Treasury announced on Sep-

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tember 15th, in effect, that your were healthy. Mr. Allison says he
doesn’t know if you were healthy or not, but by the time four weeks
had passed, it is clear that Citi needed another $20 billion, and
then shortly after that, more than $300 billion in guarantees. What
happened between healthy and $20 billion and $300 billion in such
a short span of time?
Mr. PANDIT. And you’re absolutely right on any fundamental
basis, we had 10.7 percent tier one capital. When you looked at the
entire portfolio of the assets we were carrying, the earnings power,
this was not a rational or fundamental issue, but we were in very
dysfunctional markets at that point. This was post-Lehman Brothers——
Chair WARREN. I’m sorry, Mr. Pandit, but everyone was in a dysfunctional market, but it was only Citi that needed an additional
$20 billion after having been pronounced healthy.
Mr. PANDIT. And Madam Chair, the capital markets looked at
every financial institution, and for a period of time, when after the
stock prices of every financial institution, that happened to us too.
Our stock price started dropping, and on that Friday when it was
$3.37, the issue was not the fundamentals as much as an issue of
confidence, not only in Citi, but all the other financial markets.
Chair WARREN. But why Citi, Citi was the target and Citi was
the only one that took the money.
Mr. PANDIT. And we weren’t the last one necessarily, either. And
so, the perspective—we weren’t the first, we weren’t the last, different banks, different institutions got their own thing. Some
broker dealers became bank holding companies overnight, so everybody got a——
Chair WARREN. But of the original nine that needed money within weeks of the original TARP infusion—you got $25 billion, someone said you—the Secretary of the Treasury said you were financially healthy, and within weeks you needed another $20 billion. I
just want to understand why Citi is special.
Mr. PANDIT. Again, what I would say to you is that you’re right,
this was not a fundamental situation, it was not about the capital
we had, not about the funding we had at that time, but with the
stock price where it was—and by the way, a lot of that was driven
by short-sellers, and the short-sellers started selling stock, the
stock started going down, and when that gets to that point, perceptions become reality.
Chair WARREN. Okay.
Mr. PANDIT. And that’s exactly the reason why it was important
for all of us to take that issue off the table, and the package that
we got was a package that the Federal Reserve and the Treasury
and all the regulators thought was the right package to insure that
confidence.
Chair WARREN. So this is not Citi was special, just Citi had bad
luck?
Mr. PANDIT. You know, I don’t mind being special and I think we
were in the sense that we came in—Citi came into this market
with assets on which we took a lot of losses. In this particular case,
the market dynamics were really important and that caused us to
get to that point.
Chair WARREN. Right. Thank you, Mr. Pandit.

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I apologize to my fellow panelists for running over.
Mr. ATKINS.
Mr. ATKINS. Thank you, Madam Chair.
I wanted to explore a little bit about Citigroup’s relationships
with the government, its major shareholder. To what extent—and
we explored this a little bit with Assistant Secretary Allison—to
what extent is Treasury in contact with either your office or other
parts of Citigroup—on a daily, weekly, monthly, periodic basis?
Mr. PANDIT. Treasury is a very critical shareholder, very important shareholder for us, and we do what we can to reach out to
them like we reach out to a number of our shareholders as well.
And we have those conversations with them at a variety of different levels in the company. And they, as a shareholder, have
every right to call us to ask for the same public information every
other shareholder gets. We do that all the time.
Mr. ATKINS. Do they get any special information?
Mr. PANDIT. Mr. Atkins, as you know, under securities laws, especially given the fact that they have to sell stock, there are limitations on what we can tell them.
Mr. ATKINS. You know where I was going. Okay. So, as far as
the levels within Treasury, you’re saying it’s at various levels within the——
Mr. PANDIT. We are completely open on whatever information
they want, whenever they want, the same information that would
be available to any other shareholders.
Mr. ATKINS. Okay. Now, it’s been reported that Citibank, or
Citigroup, has the largest lobbying budget of any financial services
firm in Washington, and so I was wondering, as far as your activities on the Hill and with the White House, and your obvious support for, it sounds like a number of the Administration’s proposals,
how you are spending your lobbying dollars in Washington.
Mr. PANDIT. I can’t comment on where that budget is or not
versus anybody else. Let me just tell you that we do have points
of view on financial reform. We have points of view on global markets, and we believe it’s important to get those points of views
across to lawmakers and Congressman, and/or people who are interested in our perspective as well. And we do it, but this is an effort that’s driven by what we think is right for the financial system
and, you know, I think it’s the right thing for us to express our
points of view.
Mr. ATKINS. Well, do you agree with the so-called Volker Rule
the President referred to—and apparently they’ve sent formal language up to the Hill today.
Mr. PANDIT. You know, I haven’t seen the language, so I can’t
comment on the details. But as a company, we’ve sold a lot of proprietary trading businesses, we’ve sold a lot of hedge funds, we’ve
sold a lot of the private equity funds, and we’re completely focused
on clients, and I do think that banks should be banks. So now, you
know, we’re moving in that direction.
Mr. ATKINS. Okay, I made this point a little bit earlier, but, you
know, when it comes to systemic risk resolution, cram-down authority, the Volker Rule, mortgage contractual enforcement forbearance, these sorts of things—how do you protect them against a
sycophantic type of appearance, where we have perhaps govern-

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ment motors and its allied bank, and now maybe a government
bank.
I mentioned that when I was in a Citi branch last year that at
every teller station there was a Barack Obama authored book and
they were giving it away to people that opened new accounts. How
do you protect against that?
Mr. PANDIT. Well, first of all, I can’t speak for my branch manager who wanted to do that, that’s their decision, that’s not my decision and I don’t make those decisions as well. But let me say, this
is a tough position for me. Because if I say what I believe and it
happens to be in line with what somebody else believes in the Administration, it looks like, hey, you know, I’m doing this because
the Treasury is a 27 percent shareholder. It is a no win situation
for us——
Mr. Atkins. Because you’re not——
Mr. PANDIT [continuing]. For somebody like me, but I believe
these things, that’s why I’m here telling you that these are the
right things to do. And by the way, who better to really share with
you a systemic perspective other than a CEO who’s gone through
a very interesting two years.
Mr. ATKINS. I agree. Well, then going back to your experience in
the capital markets, what is now your strategy with respect to your
brokerage operations, if you think an idea like the Volker Rule is
good, you’ve gotten rid of Smith Barney now, you have compensation things that might really harm your investment banking business. Going forward, how do you perceive that?
Mr. PANDIT. What do we do? We commit capital on behalf of our
clients. That’s number one. Number two, we make markets and
provide liquidity to the markets. Number three, we use capital
market instruments to hedge our risk, occasionally. Number four,
we do use our capital occasionally to create new ideas and new
products and test them before we take them out to our clients.
Those are the activities we’re involved in, in our brokerage businesses.
And again, when you look the full gamut of them, the maximum
value to our clients comes from performing those functions, which,
by the way, then translates into maximum value for our shareholders.
Mr. Atkins. Would you take a short position that is contrary to
one of your client’s positions?
Mr. PANDIT. This is a hypothetical question.
Mr. ATKINS. Yeah, exactly. It’s just in general.
Mr. PANDIT. Mr. Atkins, you know what it means to make markets, you have to be a principal agent to make markets. And, I
would do what is right to manage a book on that basis, but I’m
not—if the question is, am I going to use some information, the answer is no.
Mr. ATKINS. All right. Okay. So proprietary trading and other
things are still an integral part of your view of how you think your
business should be run on the institutional side.
Mr. PANDIT. Let me be very clear, we have to commit capital on
behalf of clients, that’s what banks do. We have to make markets,
that’s what banks do. And credit, as an example, we have to do
these things. Proprietary trading is when you have people who ac-

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tually don’t interact with clients and they are actually covered as
a client by other people on the street. They treat them as a client.
Well, you’re using the company’s capital, and I don’t believe you
should use—banks should use capital to speculate that way.
Mr. ATKINS. I agree, and I thank you, because that is the rub,
I think, is the definitional aspect of that, so, perfect. Thank you.
Chair WARREN. Mr. Silvers?
Mr. SILVERS. Mr. Pandit, this may seem repetitive, but I’m afraid
that I can’t resist this. In October of 2008, say October 1st, was
Citigroup a healthy financial institution? Yes or no?
Mr. PANDIT. Yes.
Mr. SILVERS. On November 21, 2008, was Citigroup a healthy financial institution? Yes or no?
Mr. PANDIT. Yes.
Mr. SILVERS. Why do you think that Mr. Allison was so unable
to answer those questions?
Mr. PANDIT. You would have to ask Mr. ALLISON.
Mr. SILVERS. You know, clarity is one thing, Mr. Pandit, credibility is something entirely different. I think you’ve given clear answers, but I don’t believe you’ve given credible ones, frankly. And
I think it’s easy to give those answers having weathered the storm
with the public’s money.
Now, let me ask you this, did you speak to anyone in the Treasury Department during the week from November 18th to November
25th, 2008?
Mr. PANDIT. Mr. Silvers, let me first say that I appreciate——
Mr. SILVERS. Nope, I’m asking you to answer that question. Did
you speak to anyone in the Treasury Department during that
week?
Mr. PANDIT. I don’t recall if I did.
Mr. SILVERS. You don’t recall.
Mr. PANDIT. I don’t recall if I did.
Mr. SILVERS. Did anyone in Citigroup, to your knowledge, speak
to anyone in the Treasury Department during that week, and I remind you that a few moments ago, you stated that, ‘‘We,’’ some we,
‘‘agreed that it would be a good idea to back up Citigroup during
that week.’’ Who’s the we?
Mr. PANDIT. That was over the weekend, the Federal Reserve
and the regulators talked to us and we also had conversations with
the Treasury and other regulators at that time.
Mr. SILVERS. Okay, who’s the we? What human being spoke to
what human being?
Mr. PANDIT. At that point in time, there were numerous conversations between the people of the New York Fed, people in the
Washington Fed, people at some of the other——
Mr. SILVERS. Did you open that conversation by saying, ‘‘We’re
a healthy bank and we’re calling you because we would just enjoy
having another $20 billion of government money and a $300 billion
asset guarantee?’’
Mr. PANDIT. No.
Mr. SILVERS. What—how did the conversation go?
Mr. PANDIT. The conversation, again, was very simple. The stock
price was at $3.37, which was an exceptionally low level of stock
at that point. It was a result of short-selling, and it was at a point

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in time where the stock itself could have caused an issue of confidence, and therefore, the conversations were around how to restore confidence——
Mr. SILVERS. And what did you represent would have occurred
had Treasury and the Fed declined to act? Did you represent that
anything in particular might happen?
Mr. PANDIT. You know, I do not recall any conversations where
I represented anything. These were issues about what——
Mr. SILVERS. Well then——
Mr. PANDIT [continuing]. Would happen—what——
Mr. SILVERS. Did anyone who was representing Citigroup speak
to anyone—to your knowledge—speak to anyone in the Treasury or
the Fed about what would happen if there wasn’t additional aid
forthcoming?
Mr. PANDIT. Not to my recollection.
Mr. SILVERS. Who do you—what is your knowledge as to who
spoke to either Treasury or the Fed on behalf of Citigroup during
that period?
Mr. PANDIT. I can get back to you.
Mr. SILVERS. Mr. Pandit, do I recall correctly that you were the
Chief Executive Officer of Citigroup during that week?
Mr. PANDIT. Yes, I was.
Mr. SILVERS. All right. I find it rather difficult to believe that
someone in your position cannot recall who—who you spoke to or
who spoke on your behalf to the Government of the United States
about the extraordinary aid that the government provided to
Citigroup during that period.
Mr. PANDIT. You know, I want to give you——
Mr. SILVERS. And you memory seems pretty good otherwise.
Mr. PANDIT I want to give you a very complete answer, you
asked specific questions, I——
Mr. SILVERS. Well, I don’t mind getting an incomplete answer.
Share with me your fragmentary memories of that weekend.
Mr. PANDIT. Well, I’ll tell you again, a number of people at Citi
talked to a number of people at the regulators, a number of people
at the Treasury, a number of people at the Fed, the New York Fed,
and that could be a large list. Let me come back to you with specifics.
Mr. SILVERS. Okay. Let me turn to a different matter before my
time expires. Mr. Pandit, you were hired in early 2007, I don’t recall the exact date, to be the CEO of Citigroup. At that time, what
were your performance goals?
Mr. PANDIT. I was not hired in early 2007, I became CEO in December, towards the middle of December 2007.
Mr. SILVERS. Okay, well I misremembered.
Mr. PANDIT. I came in there and the Board decided they needed
to make a change.
Mr. SILVERS. Right.
Mr. PANDIT. And we entered this market with the assets we entered this market.
Mr. SILVERS. And what were your goals at the time you were
hired?
Mr. PANDIT. My goals were relatively simple, examine the strategy of Citigroup, what is the right strategy for the company, exam-

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ine the capitalization and the financials of Citigroup, put the two
together and translate that into the right culture for the organization on a long-term basis.
Mr. SILVERS. Examine a few things. I mean, I would ask you—
and my time is up—but I would ask you in writing to explain the
answers to the following questions. I would give you the opportunity to further expand on what the goals that the board assigned
to you at that time were, I would ask you to assess whether you
met them or not, and I would I ask you to disclose the amount of
money you were paid for meeting those goals, between that date
and the end of 2008, during the time when—at least by press accounts, although not by your account—Citigroup necessitated a
bailout, absent which Citigroup would have had to file for bankruptcy.
Chair WARREN. Thank you.
Mr. McWatters.
Mr. MCWATTERS. Thank you.
Mr. PANDIT., in your written testimony, you say that Citigroup
no longer has a goal of being a financial supermarket. I remembered the merger with Travelers, I guess it was Citicorp a few
years ago, Sandy Weil, this was a much-touted goal, it was the future, it was the only way to really compete on a global stage. Your
goals are different now, why are they different, why has the business model failed? Or if it hasn’t failed, why are you no longer interested in it?
Mr. PANDIT. Mr. McWatters, markets are different, the environment is different, the way competition is happening is different. If
we see what’s happened over the last couple of years, a lot of the
places where funding was received, like securitizations, and/or
other areas, are largely not there. And so, when you look at the
changes that have occurred, that has had an influence on that
strategy.
But more fundamentally, as I looked at the company—and by the
way, it was a completely dispassionate review, a dispassionate review of what we needed to be, and we did it with complete integrity
as a company. We concluded, by the way, that that was an interesting model, but did not add sufficient value to our clients and
therefore did not necessarily create sufficient value to our shareholders. But the biggest part of the value came from the core businesses we had, which was the banks, which is why we made the
change.
Mr. MCWATTERS. Okay. What aspects of your compensation
structure, not yours personally, but of your managers, let’s say, two
years ago or so, when the securitization bubble was inflating, do
you think may have led to that? In other words, you have people
who are compensated on closing deals, but then the deals leave
their area, rather become a problem of the institution itself, if
they’re retained, or they become a problem with third-party investors. Can you explain how your compensation structure has
changed, and has it changed in a way where you can still encourage innovation?
Mr. PANDIT. Absolutely, I think that is a critical part of how we
changed culture, how you manage risks going forward in the right
way. Compensation structure changes we’ve made have been those

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that say you get more stock as compensation. You have to be
around for a long time in order for them to vest as compensation.
We have claw-backs so that if something does go wrong, we have
an ability to recover compensation. We have say-on pay as a company. As importantly, we take explicit risk taking and risk management criteria into account when we pay compensation, and we
actually put some of that down on our 10K that we just filed. And,
one of the entities that looks at these things looked at it, and I just
saw something this morning—they call it, sort of, the Cadillac
version—of how you take risk and compensation and blend them
together.
So this is, to me, a very important cultural issue, and it’s actually at the heart of how you change a company into a client-oriented company.
Mr. MCWATTERS. Thank you. Last month we issued a report on
the commercial real estate market that did not have a particularly
favorable outlook. What is Citigroup’s exposure today?
Mr. PANDIT. We do have exposure to the commercial real estate
market, however I would tell you that it is a smaller exposure than
many of our peers who are in this business, and as well, it is to
a big portion of the market, and so we have taken the marks. And
as importantly, a lot of that exposure is in large cities, office buildings, leased buildings, et cetera. So, when I look at the whole exposure we have, it is exposure on the balance sheet, but that is less
of a concern to me as a CEO.
Mr. MCWATTERS. Okay, thank you. Could you comment on the
activity of the short-sellers in the last quarter of 2008?
Mr. PANDIT. You know, again, as I was talking about this, there
were a number of instances, post the Lehman Brothers collapse,
and in our case, post Wachovia break up as well, where the markets were not really functioning in a rational way, they were frozen. In those markets, there’s always this battle between fear and
confidence. And, that there are ways in which fear overtakes it,
and particularly, that’s the tool that short-sellers need to make
money. And so that was a very dominant activity, and there were
no real circuit breakers to stop the short-selling, and that’s one of
the things that took our stock down.
Mr. MCWATTERS. Okay, thank you, my time is up.
Chair WARREN. Thank you, Mr. McWatters.
Superintendent Neiman.
Mr. NEIMAN. Mr. Pandit, I’d like to come back to your comments
regarding looking forward and financial institution reform. And
you were very clear in saying Citi believes that banks should operate as banks, focus completely on serving their clients. I could not
agree with you more. I think if there’s one lesson learned from the
American public, it is what do we want our banks to be. I think
the lexicon of the federal safety net is a new term that very few
Americans have understood previously, but are very focused on
now, and it goes well beyond FDIC insurance to the other forms
of implicit and explicit support that are provided to institutions,
and that can certainly subsidize bank and non-bank activities.
So, can I read your statement to also imply support for the
Volker Rule as you understand it?

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Mr. PANDIT. Again, Mr. Neiman, I haven’t read the rule. It just
came out, so I don’t know what it is.
Mr. NEIMAN. Understanding that separating out proprietary
trading, private equity and hedge fund trading.
Mr. PANDIT. So, let me be very clear, proprietary trading is not
a significant—is not a big part of our business at all, and I don’t
think banks should be speculating using bank’s capital. I completely believe that.
Mr. NEIMAN. So, can I—because this is important, because Citi,
as we all well know, really was the poster child and the impetus
for Gramm-Leach-Bliley and really dramatically changing the
Glass-Steagall Act. So, when we hear CEOs say that this is a step
backward, that it could never be implemented, that it would have
disastrous results for banks business models, can you say that it
is unfounded and what is your perspective?
Mr. PANDIT. My perspective is proprietary trading is not a meaningful part of what I do as a bank. It’s not a big part at all of the
business and I don’t think banks should be using capital to speculate. As well, banks should be using capital to commit on the behalf
of clients, they should be using capital to make markets, provide
liquidity to markets, and they should be doing what it takes to
manage that risk.
And, you know, that’s fine, and occasionally if you want to use
small amounts of capital to create new products and new ideas, you
can do that, but outside of that, we don’t see the rest of the activities as core to banking.
Mr. NEIMAN. So do you think it is reasonable that rules, whether
drafted by Congress or by regulators, to distinguish pure proprietary trading, using capital to support proprietary trading, versus
market making or hedging to support client-oriented businesses is
a practical solution?
Mr. PANDIT. Well, I think the regulators are best positioned to
look at what everybody is doing, and we are in constant consultation with them, and they are really quite equipped to say, you
know, this is not necessarily related to core banking.
Mr. NEIMAN. Well, I look forward—because this is extremely important, and not in the sense that proprietary trading contributed
to the crisis, but it really goes to the issue of the federal safety net
and how do you prevent the next crisis.
I’d like to now shift over to consumer protection, because the
scope of the foreclosure crisis painfully highlights that we must do
a better job of consumer protection. And you make specific comments in your written testimony about the need, seemingly in support of a consumer protection agency that would adopt standardized rules across the country, and to provide a level playing field.
National banks, including yourself, have often claimed that complying with State consumer protection laws is uniquely burdensome. I think another lesson that we all have learned from this crisis, is that States were the first to sound the alarm on predatory
lending. And in fact, had many of those laws been applied to national banks, we would not have been in the crisis that we have
today.
Mr. PANDIT. And, Mr. Neiman, I think we should have a race to
the top on these things, but we should have national standards.

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Mr. NEIMAN. I think that is always what we hear from national
banks and I spend a lot of time, you know, working. I started my
career at the Comptroller of Currency and have worked for national banks, so I certainly understand that perspective, but it is
clear that there are thousands of State laws that banks comply
with, whether it be enforcement of contracts, foreclosure, zoning,
debt collection processes. Why is it when it comes to consumer protection that banks don’t seem to be able to comply and assert that
these are overly burdensome?
Mr. PANDIT. We are living in a national market whether we like
it or not, and we are a national business in what’s actually a global
market, as well. And for consumers, we believe that if you go from
one State to the other there should be some parity on how you are
treated. We also believe, by the way, clearly, that these kind of
rules can increase the cost to us, and that can therefore, unfortunately translate into higher costs for consumers. And more importantly, whenever you have different rules in different States, you
create the possibility for regulatory arbitrage, which is almost a
race to the bottom. So, we’d rather have a race to the top with common standards—the highest standards, you pick them.
Mr. NEIMAN. My time has expired, maybe we’ll come back to this.
Thank you.
Chair WARREN. Mr. Pandit, if you can bear with us for just a bit
longer. We appreciate your being here. We’re going to do just some
short questions. We’re going to get through this last part quickly.
So, I just want to ask, since it seemed to be a problem for Mr.
Allison. Does Citi get a ratings bump from the market perception
that it is too big to fail?
Mr. PANDIT. I didn’t hear that part.
Chair WARREN. Does Citi get a ratings bump, for the market perception that it is too big to fail?
Mr. PANDIT. Madam Chair, the rating agencies—and I heard earlier—and the rating agencies have put out reports where it’s their
opinion that there are different standards, and not only for us, but
other banks out there. But it is their opinion as we’ve seen over
the last so many quarters, it is only their opinion.
Chair WARREN. Only their opinion. Is it valuable to have a higher credit rating?
Mr. PANDIT. Now, let me take you through where the markets
are on this. The markets look at capitalization, the markets look
at reserves, the markets look at liquidity, they look at core earnings power. In our own case, by the way, we’ve issued debt that is
substantially longer in maturity than any presumption of necessary
government assistance or how long it might take to get——
Chair WARREN. Mr. Pandit, let me stop there. I think it would
be hard to make the case that we can see some date in the immediate future when Citi will not be too big to fail.
Let me ask it differently because I really want to keep this in
small pieces.
Mr. PANDIT. Right.
Chair WARREN. Is it valuable to have a higher credit rating?
Mr. PANDIT. Where the market is today, is that it is presuming
very clearly that the resolution authority is going to get passed.

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And despite that, we’re borrowing money at longer maturities,
based on our credit spreads. That’s the market’s reaction.
Chair WARREN. All right. But Standard & Poor’s, the rating
agency, is giving you a bump. The bump is valuable. Do borrowing
costs differ for companies that are rated A, for example, as Citi is,
and BB as Standard & Poor’s says Citi would be if it did not have
this too big to fail guarantee?
Mr. PANDIT. As we look through how the credit markets look at
credit, ratings are one of the things they take into account. But, in
this particular case, they’ve also taken into account the fact there
will be a resolution authority.
Chair WARREN. But——
Mr. PANDIT. It’s our view that we’re borrowing on us being
around because of our capital base, because of our earnings.
Chair WARREN. So, Mr. Pandit, it’s your view, that despite your
A credit rating that you are borrowing at the same cost as all of
the BB companies?
Mr. PANDIT. We’re borrowing at our spreads, and the markets reflect spreads that are based on our prospects, our earnings, our
capitalization.
Chair WARREN. Maybe I should ask this a different way. Is there
a competitive advantage for a company that has an A credit rating,
as opposed to a BB?
Mr. PANDIT. In any normalized market, there can be a competitive advantage for an A rated versus a BB rated company in terms
of the cost of funds.
Chair WARREN. But it’s your view that Citi isn’t getting that
from its higher rating, it’s not getting that benefit of being A rated?
Mr. PANDIT. Our view is that we’re borrowing on the basis of our
capital, or borrowing on the basis of the market’s understanding
there’s going to be a resolution authority, and that we better manage our business correctly.
Chair WARREN. And that unlike other businesses, you don’t get
a competitive advantage by having that A rating instead of a BB
rating.
Mr. PANDIT. Ratings are one of the factors that are taken into
account by borrowers, or lenders, when they buy our paper. It’s one
factor. They have to take the whole picture into account, including,
by the way, the fact that we are proposing—let’s have a resolution.
Chair WARREN. I understand it’s one factor, but can we both stipulate it’s a very helpful factor?
Mr. PANDIT. Again, of course, how can ratings not be helpful, but
it is a factor. I keep coming back to saying——
Chair WARREN. I understand.
Mr. PANDIT [continuing]. We raise money of very long maturity.
Chair WARREN. I understand, and if we had longer time, we
could talk about paying for that.
Mr. Atkins.
Mr. ATKINS. Okay, thank you, Madam Chair.
I just have a quick question about looking forward and the business generating—because we all want, obviously, to see the bank
happy, healthy, and paying back its TARP funds. When you look
at the growth of the deposit base, it seems like some of your greatest opportunities may be abroad, rather than the U.S. Do you see

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any potential problem there, vis-a-vis the Treasury’s interest, the
`
U.S. taxpayers’ interest in growing your business overseas?
Mr. PANDIT. Again, a big part of what we do is connect businesses in the U.S. through the world. And we conduct those operations on the ground that are necessary for us to be able to do that
effectively. That, by the way, is on top of the fact that we actually
are a significant factor in the U.S. market as well. We lend in the
U.S., we provide credit card loans, we provide mortgage loans, we
provide corporate loans. So, our full package, as a company, is we
can help you in the U.S., but we can help you wherever you want
to go to sell your products, to whichever consumer base you want
to sell your product.
Mr. ATKINS. But on a risk management basis, isn’t it good to
have a broad base, a business base, a deposit base, not just in the
U.S., but also in other countries?
Mr. PANDIT. I think that sources of funding are really important
and having diversified sources of funding are always an advantage.
Mr. ATKINS. Now, there’s a proposal for an industry liabilities
tax, which would basically treat foreign sources of deposits as a tax
liability in this case, and then be taxed thus. How do you view
those sorts of proposals?
Mr. PANDIT. I think each of those proposals has to be looked at
in the context of what’s the economic impact, if not impacting the
ability to serve our clients and their ability to export. What does
that mean for jobs? What does that mean for GDP? I mean, those
are the things that have to be looked at.
Mr. ATKINS. So, it’s a bigger view than just looking at individual
small questions, you have to look at the totality of it.
Mr. PANDIT. Absolutely.
Mr. ATKINS. Now, there’s an organizational study that was done
for you all that, I guess you didn’t necessarily implement all of the
recommendations. Did that have an effect in helping you decide
what sorts of things went into Citi Holdings or might yet go into
Citi Holdings, and what is part of your core business?
Mr. PANDIT. We actually—yes, we went through a lot, again, a
very deep, very thoughtful process, markets had changed, funding
markets had changed, where U.S. growth is going to come from
changed, including by the way, that foreign consumers are going to
consume more. So we took all of that into account, and that’s how
we came up with Citicorp as our future.
Mr. ATKINS. So, the rest of these recommendations, are they still
potentially on the table or are you still reviewing those sorts of
things, or do you view it as a closed book?
Mr. PANDIT. As you can imagine, I constantly look at what’s right
for Citi, what’s right for shareholders, what’s right for clients, but
I believe a large part of our thinking is reflected in what we already talked about.
Mr. ATKINS. Okay, super. Well, again, thank you very much for
being here today.
Mr. PANDIT. Thank you, Mr. ATKINS.
Chair WARREN. Thank you.
Mr. Silvers.
Mr. SILVERS. Mr. Pandit, you were just talking about what’s in
the interest of shareholders and obviously the United States Gov-

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ernment is a large shareholder. But, I am concerned about what I
read in analyst reports and the like about a reversion to the kinds
of dynamics that led your predecessor Mr. Prince to come to Treasury and beg them to tell him to not lever up so much. Effectively,
there are ways of generating shareholder value that are not sustainable, and if those values—if those ways are pursued once
again, it’s the United States Government that I believe will end up
holding the bag, again.
In that regard, can you tell me what you’re doing to ensure that
those types of short-term unsustainable strategies, particularly
releveraging, are resisted.
Mr. PANDIT. We have a completely new clear strategy. It’s about
serving clients. Why am I doing something, is it in the interest of
clients, that’s number one. Number two, I have a completely redone
management team, lots of new people who understand what it
means to run business. It’s a great team we’ve put together. We
have a new board with a lot of financial services expertise, regulators on the board, people who are asset managers, people who
have run banks, run businesses, they’re on the board.
In addition to that, we’ve changed our risk management completely. The risk management structure looks at products, regions,
businesses in triplicate to understand exactly what our exposures
are, and our risk profile and risk appetite has changed. So, this is
a different company. That’s been the goal I’ve been moving towards. I still have those assets that Citi came into this market
with, I’m working down, but it’s a different company.
Mr. SILVERS. I’m not so much talking about the assets on your
balance sheet right now, just the liability side.
Mr. PANDIT. Yes.
Mr. SILVERS. And the pressures that I’m sure you are reading
about and hearing, as I am, on Citi to relever, to reduce—the talk
of Citi being over-capitalized and the like.
Mr. PANDIT. Well, I’m glad to hear that we’re over-capitalized.
Mr. SILVERS. It depends on who’s saying it, right. If people are
saying it who have a clear interest who are short-term equity traders, you know, if you listen to them we could easily endanger the—
we could easily, essentially put the risk of the United States in
play once again.
Mr. PANDIT. You can count on me. You can count on my management. You can count on the board to run this institution prudently,
in the interest, not only of our shareholders, but starting with our
clients and being systemically responsible. The biggest change that
I’m making at Citi is to develop a culture of responsible finance.
That’s the legacy I want to leave behind.
Mr. SILVERS. Mr. Pandit, I appreciate your answer. Can I just
ask you one more brief question, which is, in you written statement
you alluded to Citigroup’s support for a consumer financial protection authority. That’s a different word, and here I’m trying to protect you against my colleague, Paul Atkins’ accusation that you
parrot the Administration. That’s a different word than the Administration uses in its white paper. They talk about an agency. Is
there a meaning to that difference?
Mr. PANDIT. Well, I do believe that we need a focal point for consumers. I do believe that this area has to set national standards,

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has to promote clear, full disclosure, look at consumer markets, all
of that. But, there are lots of different architectures that can actually create that.
Mr. SILVERS. So, I’m wrong, you do agree with the Administration’s position on this? I just want to understand what position——
Mr. PANDIT. My position is that there are a set of functions this
consumer authority must serve. My position is that this authority
must have the ability and the authority to execute on its functions,
but that the architecture of this can be looked at in a lot of different ways.
Mr. SILVERS. Okay, thank you.
Chair WARREN. Mr. McWatters.
Mr. MCWATTERS: I have no additional questions.
Thank you for appearing today, Mr. Pandit.
Mr. PANDIT. I appreciate it, Mr. McWatters.
Chair WARREN. Thank you, Mr. McWatters.
Superintendent Neiman.
Mr. NEIMAN. I’d like to come back to our discussion on consumer
protection because I very much liked your characterization of a
race to the top, and in fact, with your permission, I’d like to use
that in future speeches. Because I think that’s really where we
should be going and how it should be characterized, but I would
believe that the best way of getting there is that rules at the federal level be a floor and not a ceiling, if you really want to have
a race to the top.
So, my question is, on this issue of preemption in that context,
is it a necessity or just a preference?
Mr. PANDIT. Mr. Neiman, I can clearly see the different points
of view on this. I can see, by the way, rationally I can see both
points, I can just tell you what I believe. I believe it’s better for the
country, better for the consumer that you take the best standards
and make them national.
Mr. NEIMAN. I agree with you, and to the extent that they are
national standards and they are the best, States, in fact, have been
very reluctant to go further. One good example is the fear from national banks that there’s going to be a patchwork. Well, GrammLeach-Bliley and its adoption of the privacy protection rules, said
‘‘we’re going to have a national standard, however States can go
further to protect consumers.’’ And only a handful of States have
done that. So, I think that is the right model, and so I’d be interested in your perspective on that.
Mr. PANDIT. Again, my perspective is still the same, I believe in
the highest standards for consumers, absolutely. We think what’s
good for the consumers is good for the U.S., it’s good for the banking system. I also believe we’re a national market. So, we really are
a national market and shouldn’t we all just get together and figure
out the best standard?
Mr. NEIMAN. And we should. But we also have to recognize that
events change very quickly, and one lesson that we’ve learned is
that the States had identified early on issues around subprime
lending and predatory practices.
One issue that is often lost in this debate is around duty of care
owed by financial institutions. There’s been a lot of focus on CFPA
as to where it’s located in product terms. But what I think is at

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the core, that is often overlooked, is what is the duty of care owed
by financial institutions in offering of products. Interest-only products may certainly suitable for one level of customer, but not another. How would you address the duty of care and issues around
appropriateness of products, in your retail business in particular?
Mr. PANDIT. Absolutely. And by the way, that’s one of the first
things that I made sure of that we changed when I came in. We’ve
changed the underwriting standards, we made sure that our products are those that we believe are suitable for the customers we’re
selling these products to. I think suitability is an important issue.
Mr. NEIMAN. Well, I’m glad you raised that term because that is
at the heart of it. Yeah.
Mr. PANDIT. But I also believe, by the way, that you can’t be the
Lone Ranger on some of these things, and that you do need collective action occasionally, and it’s not going to happen by having just
one bank stand up and say that’s where I am. It needs a focal
point, that’s why we think we need a——
Mr. NEIMAN. And that’s why I think we need a new federalism,
a new level of cooperation between the States and the Federal Government, with respect to bank supervision——
Chair WARREN. Thank you.
Mr. NEIMAN [continuing]. And consumer protection.
Chair WARREN. Thank you.
I wish that Assistant Secretary Allison had stayed to hear your
testimony and to participate in this part of the oversight process.
We appreciate your coming here today, Mr. Pandit. On behalf of
the entire panel, thank you.
The record will be held open so that we may submit additional
questions in writing, and you may submit additional answers.
Otherwise, this hearing is now ended.
[Whereupon, at 12:47 p.m., the panel was adjourned.]
[The responses of Mr. Pandit to questions for the record from the
Congressional Oversight Panel follow:]

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102