EU's Kroes says time "smart" bankers show respect

* EU competition czar attacks arrogance among bankers

* Kroes - time bankers showed respect to taxpayers

* Kroes urges investors to demand change

By Foo Yun Chee and John O'Donnell

BRUSSELS, Nov 12 (Reuters) - Bankers should not be allowed to think they are smarter people who deserve different rules and better pay, the European Union's competition chief Neelie Kroes said on Thursday.

In a hard-hitting speech that comes as the European Union is examining a raft of tough new rules for banks, Kroes said bankers should show some respect to customers and the taxpayer.

"Too often bankers think they are better, smarter people who deserve different rules and different pay to everyone else," she told an industry event in Amsterdam.

"They can only think that if others let them."

Kroes, who is nearing the end of her five-year term as the competition commissioner, recently forced the break-up of Britain's top two retail banks, Royal Bank of Scotland (RBS.L) and Lloyds (LLOY.L), in return for allowing a state bailout.

She has become a hard-charging champion for customers and taxpayers, showing a determination to take on financiers.

There has been a growing backlash against bankers from law makers who fear a return to business as usual just months after the worst economic crisis in a generation.

"Now is not the time for tantrums. Now is the time for the banking industry to show some respect to its customers, investors and the people who are often funding it all -- taxpayers," she said.

Kroes also urged investors to push banks to change the way they operate, and said regulators should improve if they were to avert a repeat of the worst financial crisis in decades.

European Union governments have pumped trillions of euros into banks across the 27-country bloc in the wake of the collapse of U.S. investment bank Lehman Brothers in September last year.

"Banks should not be allowed to go back to business-as-usual simply because they have the best paid lobbying voices or because others are afraid to ask questions," said Kroes, adding that an investor-led push for culture change could force different pay for bankers.

(Reporting by Foo Yun Chee; Editing by David Cowell)