The Federal Deposit Insurance Corp is aiming at a shake-up of Citigroup Inc's top management, including replacing Chief Executive Vikram Pandit, the Wall Street Journal said, citing people familiar with the matter.

U.S. officials have reached out to former U.S. Bancorp Chief Executive Jerry Grundhofer, who recently joined Citigroup's board, to see if he is interested in the top position at Citi, the paper said, citing people familiar with the matter.

Under Chairman Sheila Bair, the FDIC recently pressed a fellow regulator to lower the government's confidential ranking of Citi's health, the paper said, adding that such a move would let regulators control the company more tightly.

Citigroup officials have argued that Bair is overstepping her authority, according to the paper.

FDIC officials are particularly concerned about Citi's lack of senior executives with experience in commercial banking, according to the paper.

The FDIC is our tertiary regulator, behind the Office of the Comptroller of the Currency and the Federal Reserve, the paper quoted Citigroup Chief Financial Officer Ned Kelly as saying.

The FDIC is heavily exposed to Citigroup, the paper said, adding that it is helping finance a roughly $300 billion loss-sharing agreement with the company.

Citigroup has issued almost $40 billion in FDIC-backed debt since December, the paper said, citing Dealogic, a financial data provider.

The FDIC, created during the banking crisis of the Great Depression, tries to nurse weak institutions back to health or find a buyer.

Bair, a Republican appointed by former President George W. Bush, has been praised by both Democrats and Republicans involved in financial regulation reform. Lawmakers are considering designating the Federal Reserve or creating a council of regulators to act as a systemic risk regulator to safeguard the U.S. financial system.

PARSONS AFFIRMS FAITH IN MANAGEMENT

We went through a rigorous stress test process, the results of which were agreed to by appropriate regulatory agencies and clearly reflect the significant progress made by this management team over the last 15 months to turn Citi around, Citigroup Chairman Richard Parsons said in a statement emailed to the newspaper and later to Reuters.

Parsons said Citigroup has reduced its balance sheet by nearly 25 percent and riskier assets by over 50 percent.

We have raised an unprecedented amount of capital, and, upon completion of the pending public exchange offer, Citi will be among the best-capitalized banks in the world, Parsons said.

The FDIC did not immediately respond to a Reuters email seeking comment on the newspaper report.

(Reporting by Ajay Kamalakaran in Bangalore; editing by Miike Nesbit)

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