FDIC's Battle With Citi (C) Execs Highlights Debate Over Bureaucratic Competence

Despite better-than-expected results from the Fed's recent "stress test", regulators at the FDIC are continuing to pressure Citigroup (NYSE: C) execs to hasten the pace of their bank's restructuring. At the heart of the battle is Citi's controversial CEO, Vikram Pandit, and the FDIC's Sheila Bair, who recently pressed a fellow official to cut the government's confidential rating on Citigroup's financial condition.

While many investors have questioned Pandit's managerial performance as the current financial mess has unfolded, a portion of the market is also concerned that the FDIC and Sheila Bair are overstepping their authority. Bair's most recent move would give federal regulators even more control over the embattled bank, a change which sources say could lead to the eventual forced-removal of Mr. Pandit and several other execs.

The FDIC's argument stems from the assumption that Citi's management team lacks experience in commercial lending. To fill such a roll, sources have suggested that the FDIC has reached out to Jerry Grundhofer, the former CEO of U.S. Bancorp (NYSE: USB), who recently joined Citi's Board.

The ongoing-battle brings into focus the widening gap between two extremes on the spectrum of oversight which have emerged as a result of the financial turmoil: strangling regulatory oversight vs. flailing managerial competence. And with the Obama administration's large-scale revamping of financial oversight just around the corner, it won't be long before we can tell which side will be the first to be "fixed".

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