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Derivatives Could Grow Under New Rules: Citi CEO

Running derivatives through clearinghouses, part of the proposed financial regulations reforms now in Congress, will make them more secure and eventually may pump up their volume, Vikram Pandit, CEO of Citigrouptold CNBC Friday.

Vikram Pandit
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Vikram Pandit

“I don’t think we should look at the shorter-term impact of some of these rules,” said Pandit. “The longer-term benefit to all of us [is] a safer system. People really trusting derivatives is a good thing.”

Pandit talked with CNBC from the St. Petersburg International Economic Forum in the former imperial capital of Russia. The gathering continues until Saturday.

Pandit said strong financial reform is good “because banks should get back to supporting the real economy, making loans, helping people save, helping people invest.”

Financial regulation will bring new rules on transparency and, others, against banks speculating with capital, he added.

Pandit said the so-called Volcker Rule doesn’t really affect Citi , because what it opposes—banning certain speculative investments that don’t benefit customers—isn’t part of the bank's core business, but it does impact other institutions.

“The question on the Volcker Rule is a proprietary trading question, and that relates to should you take that capital away from what is necessary to make loans to corporations or help them with other capital commitments and put it for use for your own account as proprietary trade?”

He said, as he understands the rule, it is acceptable for banks to commit capital on existing clients.

The Volcker Rule, or Plan, is the idea of former Fed chair Paul Volcker, who has argued that such speculative dealings played a major role in the financial crisis. Volcker is now chair of the Economic Recovery Advisory Board, under President Obama.

A couple of years ago, said Pandit, Citi pulled out of the consumer business in Europe—a move that bank management is naturally satisfied with in light of the debt crisis in Western Europe.

On the other hand, added Pandit, Citi is generating solid business from emerging markets. “The credit situation is better [there], and there’s good demand for loans from both consumers as well as corporations.”

You can see much more of Maria's interview with Pandit, including his comments about the makeup of Citi and Basel iii recommendations, on "Closing Bell",3-5pm ET today.

For the full transcript of the interview, click here.