* Pandit voices support for Obama financial reform goals
* Pandit: Bank has scaled back proprietary trading
* US Treasury: no more taxpayer funds for Citi
* Panel member concerned Citi becoming "politicized" (Adds fresh quotes, background, color from hearing)
By David Lawder
WASHINGTON, March 4 (Reuters) - Citigroup Inc (C.N) Chief Executive Vikram Pandit on Thursday voiced support for key Obama administration financial reform goals, including a consumer protection authority, but government watchdogs questioned his earnestness.
In testimony to a panel that helps police government bailout efforts, Pandit advocated a watered-down version of a consumer protection agency proposed by Obama and said banks generally should not engage in trading for their own profit, noting that Citigroup has scaled far back on such activity.
However, he stopped short of a full endorsement of the so-called "Volcker rule", which would explicitly ban banks from buying and selling investments for their own books unrelated to customer accounts. The U.S. Treasury sent legislative language on the proposal to lawmakers on Wednesday.
"Let me be very clear: proprietary trading is not a big part of our business at all and I don't think banks should be speculating using banks' capital," Pandit said.
The supportive comments from the Citigroup CEO, whose bank is 27 percent owned by the U.S. government after $45 billion worth of bailouts in 2008 and 2009, rang hollow with some panel members. Paul Atkins, a former member of the Securities and Exchange Commission, said it appeared that Citigroup was becoming "politicized".
"It's difficult to avoid the impression that one of the motivations is to curry favor with the hand that feeds it," said Atkins, who was appointed to the SEC by former President George W. Bush.
NO MORE MONEY
But a smiling Pandit appeared relaxed and confident through a less-than-heated grilling in which he declared that Citigroup no longer needs government funds. All of Citi's businesses were solvent, he said, adding that he was focused on profitability and supporting his clients.
"Taxpayers still hold 27 percent of our common stock and we look forward to helping them make money on that investment," he said.
The government stepped in to prop up Citigroup at the height of the financial crisis in October 2008 when officials at the U.S. Treasury feared the bank's crumbling financial condition could destabilize financial markets worldwide.
Pandit suggested that Citigroup needed an additional bailout just weeks after it received an initial $25 billion in taxpayer funds not because of financial weakness, but because markets were attacking it.
"A lot of that was driven by short sellers. Short sellers started selling stock, the stock price went down, and when it hits that point, perceptions become reality," he said.
The U.S. Treasury's top bailout official, assistant secretary Herbert Allison, said the government has "no plans whatsoever to make further investments in Citigroup."
TREASURY: CITI BAILOUT "WARRANTED, NECESSARY"
Allison defended the repeated bailouts as necessary to keep the financial crisis from worsening.
"Given Citigroup's substantial international presence, global liquidity pressures would likely have increased and confidence in U.S. assets more broadly would have declined," Allison said.
He said that if the government were to sell its Citigroup shares at current valuations, taxpayers would earn a profit, but he did not offer any details on when a sale might occur.
"We wish to dispose of those shares in the public market as soon as circumstances permit," Allison said.
Earlier on Wednesday, the Treasury said it auctioned off its warrants in Bank of America (BAC.N) -- its last holdings in the largest U.S. bank -- for net proceeds of about $1.5 billion. Most of the rest of the largest U.S. bank holding companies have already repaid their bailout funds.
PROPRIETARY TRADING SCALED BACK
Pandit steered clear of an intense debate in Congress over whether a new consumer financial protection regulator should be a stand-alone agency or placed within an existing regulator, such as the Federal Reserve. But he said it needed to be linked to banking supervision.
"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," he told the panel.
Pandit said he had sold off many proprietary trading businesses, including the Phibro energy trading unit, and was focused on trading services for clients.
He repeatedly told the panel that Citi was focused on back-to-basics banking for U.S. corporations worldwide.
"The biggest change I'm making at Citi is to develop a culture of responsible finance. That's the legacy that I want to leave behind," Pandit said. (Additional reporting by Karey Wutkowski, Kim Dixon, Glenn Somerville and Dan Wilchins; Editing by Chizu Nomiyama)