It seems Charles O. Prince III will forever be haunted by an offhand quip about dancing.

The former Citigroup chief executive infamously said in July 2007, referring to the firm’s leveraged lending practices: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

On Thursday, Mr. Prince sought to clarify his comment, which he said referred to not wanting to lose top bankers that worked on private equity deals.

Mr. Prince told the Financial Crisis Inquiry Commission that he had asked regulators to impose limitations (something he was quoted as saying in “On the Brink,” the recent book by former Treasury Secretary Henry M. Paulson Jr.

“The quote itself related to the leveraged lending business and I specifically asked the regulators to take action in regard to them,” he said.

Mr. Prince’s statement caused a bit of confusion in the room.

“You wanted regulators to ‘impose?’ So you wanted them to stop you from dancing?” asked Bill Thomas, the commission’s vice chairman and a former Republican congressman. “Can’t you set up structures inside [Citigroup]?”

Mr. Prince said that the low interest rates imposed by government regulators helped propel the leveraged buyout boom, and that banks had “no credibility to stop participating in this lending business.”

He added that he believed regulators had an interest in tightening lending standards, essentially preventing private equity firms from forcing banks to lend money for questionable deals.

Another committee member, Byron Georgiou, asked about the ballooning of Citi’s leveraged loan exposure to $100 billion from $35 billion within a short period of time.

“If you were at all concerned about this business how come you allowed the limits to be tripled during that period?” he asked.

Mr. Prince said there was a great deal of competitive pressure to make these loans even though the private equity firms were “driving very hard bargains,” and had to make sure Citi had a piece of the action.

“My belief then and my belief now is that one firm in this business cannot unilaterally withdraw from the business and maintain its ability to conduct business in the future,” Mr. Prince said.

One of the consequences of not dancing, Mr. Prince said, was that Citi could lose the private equity firms as clients and lose bankers that have those relationships. He compared running a firm like Citi to managing a baseball team where none of the players have contracts.

“And if you are not engaged in business, people leave the institution, so it is impossible to say in my view to your bankers we are just not going to participate in the business in the next year or so until things become a little more rational,” he said. “You can’t do that and expect to have any people left to conduct business in the future.”

Just months after Mr. Prince’s dancing comment, Citi took a $1.5 billion write down tied to its leverage loan portfolio. Most of the bankers that did those deals are no longer employed at the firm.

– Cyrus Sanati

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