Vikram Pandit, the chief executive of Citigroup Inc., called for "vigorous" debate on regulatory oversight as the crisis in the financial services industry continues.
Speaking at the British Bankers' Association's annual conference Tuesday in London, Mr. Pandit said three principles ought to be part of the debate: transparency, equal standards, and defining what constitutes a financial institution.
Mr. Pandit, who took over as CEO late in 2007 after Citi stumbled badly amid the credit crisis, said in the future, the function and not the form of an institution should dictate whether it is subject to financial services regulation.
Questions for financial institutions, he said, include: "Do they warehouse risk? Do they borrow short and lend long? And will their failure impact the financial system? Functional consistency is the key, and capital consistency should follow functional consistency."
"Every institution has the right to lose all the money they want, but no one has the right to impose their dysfunctionality on others in the system," he said. An uneven application of rules can only worsen the threat of system risk, he said.
Mr. Pandit pointed to the recent unprecedented opening of the Federal Reserve Board discount window to nonbank dealers, a move that a month earlier could have helped Bear Stearns Cos. in its final days when its capital base was depleted.
"But by definition, unprecedented events set a precedent," he said. "And regardless of whether that window is officially opened or closed, the market now assumes that it will be opened if necessary on an ad hoc basis. This is a hot topic of debate in the U.S. as you can imagine."
Asked if hedge funds that lend should be subject to oversight, Mr. Pandit said one has to take into account whether an institution is "systemically important."
"Once a company gets large enough to impact the financial system, shouldn't it operate under the same systemic-risk umbrella in terms of capital, liquidity, and transparency?" he said.
Mr. Pandit said the summertime will be important, because that is when the housing market is the most active.
"Home sales will indicate whether we are on a short or long rebalancing path," he said, referring to banks' rebalancing of the balance sheet through asset disposals, capital increases, and changing the duration of their funding.
