Tom Williams/CQ Roll Call via AP Images
Federal Deposit Insurance Corporation Chair Martin Gruenberg testifies before the House Financial Services Committee hearing on November 15, 2023.
Last July 27, the several bank regulators, after long delays and several bank failures, issued new rules on higher capital standards for banks. This means that banks must hold more of their own equity capital as a cushion against losses. The banks resisted this at every step of the way, since it cuts into profits. They have spent massive sums to weaken or delay implementation of the rules.
Two lead regulators pushing for this were Michael Barr, vice chair for supervision of the Federal Reserve, and Martin Gruenberg of the Federal Deposit Insurance Corporation (FDIC). Almost immediately, various people in Washington began getting calls from the right-wing press trying to get something, anything, on Gruenberg and Barr.
Last week, The Wall Street Journal broke a big story on the FDIC, and the big banks and their Republican allies in Congress are trying to use it to force Gruenberg’s resignation. A Journal investigative piece, several months in the making, documents that FDIC’s examinations division has been a toxic boys’ club of sexual harassment. The details are vulgar and appalling. Many women complained, the agency did not take most complaints seriously, and at least twenty women quit.
According to my sources, many of the details in the Journal piece began with tips fed to the Journal reporter by Republican FDIC officials and holdover staff, who might have acted internally to address the problem rather than leak material to the press. Now Republicans are demanding Gruenberg’s resignation. And here the story gets more complicated.
If Gruenberg resigns, the Republican Vice Chair, Travis Hill, becomes acting chairman. In July, Hill voted against adopting the higher bank capital standards, as did the other Republican on the FDIC board, Jonathan McKernan. Both have parroted industry talking points.
So if Gruenberg is forced out, the FDIC board would be deadlocked 2-2, with a Republican chair, and tougher capital standards would be effectively dead. That’s what this affair is really about.
In addition, there are several pending regulatory rules that would be killed if Republicans get control of the FDIC, including resolution plans for banks with $100 billion or more in assets (a direct response to banking crash of March 2023) as well as rules on corporate governance and risk management.
Nobody has accused Gruenberg of sexual harassment himself. The accusation is that he failed to police the agency. It’s charming that Republicans are suddenly obsessed about keeping government safe from sexual harassment. I can’t find another case where congressional Republicans, the party of serial sexual predator Donald Trump, investigated abuses.
But on the merits, is Gruenberg culpable for failing to monitor the conduct of the roughly 6,000 people who work for the FDIC or establishing procedures for complaints and remedies? We will soon learn more about that, but here’s what we know so far.
Is his failure to have done so grounds for his resignation? That question is now a political football, whose real goal is gutting the capital regulations.
In 2020, the FDIC’s Inspector General issued a report on sexual harassment at the agency, and proposed 15 procedural remedies to create a safer work climate and avenues of redress.
At the time, the FDIC chair was a Republican appointed by Donald Trump named Jelena McWilliams, previously a bank CEO. Apparently, McWilliams, who was installed in 2018, did nothing to carry out the report’s recommendations. The Republicans who are gunning for Gruenberg have not called McWilliams on the carpet. They should, because this happened on her watch.
With Biden’s election, Gruenberg, who had previously been FDIC chair under President Obama, became acting chair in 2021 and was confirmed as chair in December 2022. Should he have looked back at the 2020 Inspector General report and acted on its recommendations? In hindsight, yes. Is his failure to have done so grounds for his resignation? That question is now a political football, whose real goal is gutting the capital regulations.
At this writing, several House and Senate Republicans have called on Gruenberg to step down. House Financial Services Chair Patrick McHenry (R-NC) told Gruenberg in a letter they will use the panel’s “full arsenal” of oversight and investigative tools against him.
On Friday, the Democrats on the Senate Banking Committee signed a letter organized by Chair Sherrod Brown (D-OH), calling for a new Inspector General’s Report, specifically to investigate “the reports of sexual harassment and misconduct; the process that led to a lack of meaningful disciplinary action against individuals who engaged in misconduct; whether the agency implemented meaningful changes after issuance of the 2020 Inspector General’s report.”
The letter was signed by all of the committee’s Democrats, including Sen. Elizabeth Warren (D-MA), who is not exactly an apologist for workplace sexual harassment, as well as the committee’s other women members, Sens. Tina Smith (D-MN), Laphonza Butler (D-CA), and Catherine Cortez Masto (D-NV). Gruenberg has commissioned his own outside report by a law firm. The Republicans are trying to get control of that investigation by demanding that Gruenberg recuse himself. But of course, the vice-chair, Hill, has a flagrant conflict of interest, since he stands to become acting chair if Gruenberg goes down.
My reporting suggests that the FDIC’s examination department has long suffered from morale problems, quite apart from issues of sexual harassment. Ideally, Gruenberg and his colleagues should be cleaning up the department now, but that’s hard to do (not to mention tending to other agency duties) when you are overwhelmed responding to at least three investigations.
Can Gruenberg, a regulator widely respected by progressives, survive this? Should he? It depends on what the IG’s report finds. But Senate Democrats, at least for now, are determined to stand behind Gruenberg pending a full investigation and are resisting a cheesy victory for the banking industry.
