FDIC chairman faces calls to resign after scathing report. The implications for banks could be significant

FDIC chairman faces calls to resign after scathing report. The implications for banks could be significant

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, is facing calls from lawmakers to resign after a scathing 234-page report was released Tuesday detailing widespread sexual harassment, discrimination and bullying at the agency.

If he heeds the call, there could be significant ramifications for banks across the country.

The report, conducted by the law firm Cleary Gottlieb Steen & Hamilton and commissioned by the FDIC, confirms the findings of a November Wall Street Journal investigation revealing a long-standing problematic culture. It did not find that Gruenberg alone was responsible for the issues described in depth in the report based on interviews with more than 500 employees.

“We recognize that, as a number of FDIC employees noted in speaking about Chairman Gruenberg, the culture ‘starts at the top,'” the report said.

It also documented a number of instances in which he lashed out at subordinates “especially when delivered bad news or expressed views he disagreed with.” That caused staff to delay breaking news that they feared would upset him. Gruenberg’s temperament “may hinder his ability to establish trust and confidence in leading meaningful cultural change,” the report added.

Gruenberg did not respond to a request for comment. An FDIC spokesperson told CNN Gruenberg “has already implemented the recommendations in the report” and that “at his direction” the agency is “working to identify and appoint a transformation monitor and independent third-party experts to support this effort.”

The majority of lawmakers who called Gruenberg, a Democrat appointed by President Joe Biden, were Republicans. Apart from Rep. Democrat Bill Foster has stopped short of calling for Gruenberg to resign.

That’s likely because if Gruenberg resigns, Vice Chairman Travis Hill, a Republican appointee, will automatically become chairman until a replacement is appointed by the president and confirmed by the Senate. Meanwhile, that would leave the agency with one more Republican and two Democrats on the FDIC board.

Rulemaking will “stand still,” Dennis Kelleher, president and CEO of Better Markets, a group that advocates for oversight of the financial sector, told CNN. With Hill at the helm of the FDIC, there will likely be little interest in working with the Federal Reserve and the Office of the Comptroller of the Currency to pass any kind of regulation that increases bank capital requirements, he said.

Last year, the three agencies approved the first steps to finalize the rules known as Basel III Endgame — which requires the nation’s biggest banks to set aside more capital, limiting the amount of funds they have to lend to customers. The agencies are in the process of evaluating the initial proposal, which Hill rejected, and may propose new rules based on the comments they receive.

That’s why Jaret Seiberg, a policy analyst at TD Cowen, said in a note Tuesday, “Gruenberg’s departure will be positive for larger banks.”

Seiberg doesn’t think it’s likely Gruenberg will resign, however, especially since progressive Democrats like Sen. Elizabeth Warren aren’t calling for his resignation. Similarly, White House press secretary Karine Jean-Pierre did not indicate that Biden had any doubts about Gruenberg’s ability to lead the FDIC.

Kelleher also expressed concern that Hill would not respond quickly enough in the event of a banking crisis like last year, which the FDIC played a key role in mitigating. Although Hill did not head the agency at the time, he was second in command, and there is no evidence he would have prolonged or exacerbated the banking failure.