The FDIC launched a special committee to oversee an independent third-party review of the agency’s workplace culture following a series of damaging reports on widespread workplace misconduct.
On Nov. 21, the FDIC board appointed Directors Jonathan McKernan and Michael Hsu — acting Comptroller of the Currency — to co-chair the committee. McKernan and Hsu can appoint up to three additional non-voting members — likely from outside of the FDIC — to advise them during the process. The third-party review is expected to report directly to the special committee.
FDIC Chair Martin Gruenberg, an appointee of President Joe Biden, will not serve on the special committee, nor will the two other board members, Vice Chair Travis Hill and Consumer Financial Protection Bureau Director Rohit Chopra. They will have no oversight of the review.
“All employees at the FDIC need to feel safe and able to speak out if they are subject to, witness or encounter inappropriate behavior in the workplace,” said McKernan and Hsu. “Sexual harassment, discrimination and other misconduct are totally unacceptable and have no place at the FDIC.”
The investigation follows a Nov. 13 Wall Street Journal report chronicling numerous allegations of sexual harassment and other workplace misconduct at the FDIC. According to the article, the toxic work environment at the FDIC, coupled with management’s inability or refusal to sufficiently punish poor behavior, has caused employees to flee the agency. Female examiners have reportedly left the FDIC because of what they deem to be a sexualized, boys’ club environment that offered them fewer opportunities than their male counterparts.
Later that week, WSJ reported that Gruenberg and his deputies were involved in decisions over allegations of discrimination, harassment and sexism in which the agency didn’t heavily punish employees accused of misconduct. Gruenberg was also accused of having an explosive temper.
According to American Banker, Gruenberg is unlikely to bow to political pressure to resign. Jaret Sieberg, a Washington analyst at investment bank TD Cowen, said the extensive timeframe of the allegations, including some that reportedly predate Gruenberg’s tenure, weaken the case for his resignation. Todd Baker, a senior fellow at Columbia University, said previous chairs also share the blame for insufficiently addressing workplace culture. He added that the scandal could slow the agency’s work to finalize capital rules.
In response to the report, the FDIC hired law firm BakerHostetler to conduct an investigation of allegations of discrimination and harassment. Several Republicans have already called on Gruenberg to resign.The House Financial Services Committee has launched an investigation into whether the FDIC’s workplace culture impacted the safety and soundness of the banking system.
Winthrop & Weinstine community banking attorney Tony Moch said the reports will harm banks’ views of the FDIC “for some time”, especially as the regulatory agency is tasked with overseeing banks.
Moch said the FDIC must have better oversight, train staff on acceptable workplace behavior and hold them accountable when those standards are not met. He said significant cultural corrections, though challenging, are not impossible to undertake and could be necessary in this instance.