US probe finds widespread sexual misconduct at FDIC

An independent report released on Tuesday is calling for significant changes at the Federal Deposit Insurance Corporation (FDIC) to address widespread sexual harassment and other misconduct, raising questions about the future of the banking regulator's leadership. Prompted by a Wall Street Journal investigation, the report cites accounts from over 500 individuals, some of whom alleged that FDIC Chair Martin Gruenberg had engaged in bullying and verbal abuse.

The report, conducted by law firm Cleary Gottlieb, portrays an agency where sexual harassment, racial discrimination, and bullying were pervasive and tolerated by senior leaders for years, with complaints often met with retaliation. It highlights a toxic culture at the FDIC, noting that officials tasked with addressing these issues were themselves the subject of misconduct claims.

The findings have led to renewed calls for Gruenberg's ouster, with Representative Patrick McHenry, a Republican who chairs the House Financial Services Committee, calling for his resignation. Senator Sherrod Brown, chair of the Senate Banking, Housing, and Urban Affairs Committee, also emphasized the need for new leadership at the FDIC.

Some employees described Gruenberg as "harsh" and "aggressive," prone to losing his temper. In response, Gruenberg stated that he never recalled acting inappropriately and expressed his commitment to implementing the report's recommendations.

The report recommends appointing new officials dedicated to changing the FDIC's culture and hiring an independent third party to assist in the transition. It also calls for the establishment of an anonymous hotline to report misconduct, a more timely and transparent process for handling complaints, and measures to protect and support victims.

While the report does not recommend whether top leaders should resign, it questions Gruenberg's ability to oversee the necessary overhaul, citing concerns about his credibility and "moral authority" to lead a cultural transformation. Gruenberg's potential departure could impact the Biden administration's efforts to impose stricter financial rules, including a pending regulatory proposal on bank capital requirements.

If Gruenberg steps down or is removed, FDIC Vice Chair Travis Hill, a Republican, would likely take over, resulting in an evenly split board between Republicans and Democrats according to agency bylaws.