The chairman of the US Federal Deposit Insurance Commission on Wednesday pledged to change the culture at the banking agency as Republican politicians called on him to resign, in a move that could imperil President Joe Biden's regulatory agenda.
The House financial services committee hearing was focused on financial regulation, but after a report released last week unveiled shocking allegations about FDIC work culture, Republicans began calling for the resignation of its chairman, Martin Gruenberg.
The investigation revealed widespread misconduct, including allegations of sexual harassment and discrimination, after the law firm Cleary Gottlieb interviewed 500 employees at the agency.
The report also concluded that Mr Gruenberg had a reputation for losing his temper and “interacting with staff in a demeaning and inappropriate manner”.
“We do recognise that, as a number of FDIC employees put it in talking about chairman Gruenberg, culture starts at the top,” the report said.
Mr Gruenberg, who has been on the FDIC's board of directors since 2005, pledged to fix the issues at the bank regulator.
“I accept the findings of the report and, as chairman, I take full responsibility,” he said in his prepared remarks.
Among the changes would be creating an independent office to investigate misconduct that would report to the FDIC's board of directors.
Mr Gruenberg also said that four employees found to have engaged in the misconduct were “separated” from the agency.
“Fundamentally, we've got to break the good old boys network," he said.
But the House committee chairman Patrick McHenry said it was clear Mr Gruenberg is “not the right person" to lead the changes at the FDIC.
“The fact that you've not yet resigned proves that you take no responsibility for your actions and the words that you've used so far,” Mr McHenry said.
“Let me be clear, showing up today is not an act of courage. It's an act of hubris.
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While stopping short of calling for Mr Gruenberg's resignation, Democratic Representative Gregory Meeks condemned the racial and gender discrimination and harassment that the Cleary investigation found.
“I would love to talk about some of the substance of the economy but as I sit here right now, if I'm gonna be honest, I'm [expletive] off,” Mr Meeks said.
Calls for Mr Gruenberg's removal comes as the FDIC and other regulators including the Federal Reserve push for new regulation of large banks after Silicon Valley Bank's collapse last year.
The rules, proposed as part of Basel III, would require banks with more than $100 billion in assets to increase their capital by about 19 per cent.
Politicians and private banks have criticised the proposed requirements.
The Fed received more than 350 letters during the comment period, with nearly 97 per cent of them outright opposing the rules or calling for adjustments.
Fed chairman Jerome Powell previously suggested there would be “broad” and “material” changes to Basel III, although he did not offer a timeline.
Fed vice chairman for supervision, Michael Barr, who testified alongside Mr Gruenberg on Wednesday, said the Fed has not decided if it will offer comments if it made changes to the proposal.
But the hearing's focus was still largely on Mr Gruenberg, whose removal would complicate regulatory plans.
“Your employees have lost confidence in you, sir. I have lost confidence in you and Congress has lost confidence in you,” said Ann Wagner, a Republican representative.
Mr Gruenberg's removal would leave the FDIC deadlocked with two Republicans and two Democrats on its board of directors.
The 2-2 split would probably “stall and probably doom politically sensitive banking policy” including Basel III, according to a Democratic memo obtained by Politico.
Mr Gruenberg is scheduled to testify before the Senate banking committee on Thursday.
