Commentary: Industry’s silence over FDIC scandal is troubling

Ever since the Wall Street Journal published its exposé into the toxic culture at the FDIC, along with follow-up pieces on Chair Martin Gruenberg’s explosive leadership style and the resulting investigation by Congress, I’ve been waiting for banking industry leaders to publicly rebuke the agency. 

It is our banks, after all, that fund the FDIC. It is also bankers who are held accountable to its rules and the subjective determinations of its examiners — many of whom, according to these reports, have for years been held to a starkly different code of ethics.

In their joint statement issued Nov. 16, FDIC Vice Chair Travis Hill and Director Jonathan McKernan state: “News stories like these make it more difficult for the FDIC to do its job and undermine public confidence in the agency.” That’s a classic blame-the-messenger side step, like telling your spouse “I’m sorry you’re mad” when you’ve done something boneheaded. I don’t believe FDIC leadership understands the concept of accountability.

Let’s be clear: It is tales of drinking on the job, employee visits to strip clubs, wanton sexual misconduct (ugly), discrimination (illegal) and racism (also illegal), along with the FDIC leadership’s inability, or perhaps unwillingness, to get its house in order for years that is currently undermining confidence in the agency.   

But let’s set aside Hill and McKernan’s indignation for a moment and consider who should be most upset by the revelations in these articles: Bankers. 

Yes, it’s banks (and their shareholders) who pay the insurance premiums and the exam fees. More troubling: it is bankers who are held to a different operational, behavioral and leadership standard. Therefore it is bankers (and their advocates) who should be issuing statements demanding accountability and change at the FDIC, of its leadership especially. 

So far, I’ve seen no rebukes issued by banks, or by the American Bankers Association or the Independent Community Bankers of America, the two leading banking advocacy groups that track every move made by regulators that impact their constituents. It’s been crickets. That’s a huge problem for a few reasons.

Breathalyzer before breakfast?

Most people can find empathy for the lonesome road warrior, the examiner toiling away at your bank so far from kith and kin. But the life of a field examiner was described by current and former FDIC employees as “The Wild West,” with excessive drinking, sexting and coercion. Given how the body metabolizes alcohol, it’s entirely possible some field examiners reported for duty at banks still feeling the effects of their previous night’s bender. Shouldn’t we expect the FDIC to send professionals to conduct exams who are in peak cognition?

Consider also how an examiner who’d been pressured to visit a strip club or one who found a photo of a colleague’s genitals on their phone might respond to you and your credit decisions the next day. I can easily imagine an examiner under duress taking their suffering out on your bank. 

In the legal world, tainted evidence is excluded from consideration or testimony. In the context of the FDIC exam, what might constitute taint? Examiner stress? Residual intoxication? A toxic culture with unresponsive leadership that leads an examiner to seek a level of control by taking their frustrations out on you?

The field examiner is only one person looking at your bank’s records. You should expect that they and the colleagues who emerge up the chain of regulatory reporting, professionals all, are giving you their fairest determination with each and every exam. Except trust in the FDIC is now shattered. How can you be certain now that every person who weighed in on your exam wasn’t compromised, damaged in some way from their immersion in toxicity? 

Think back to how many of your field examiner’s determinations you deemed unreasonable, unfair or unfounded? Your only recourse would have been to reach out to the Ombudsman’s office. I doubt that would have resulted in any meaningful action, given the FDIC’s closed system, and how leadership reportedly protected the alleged perpetrators of illegal or inappropriate behavior by reassigning them to different regions. That didn’t work out so well for the Catholic Church.  

Reports on just how badly FDIC examiners have behaved, and the resultant impact to your business from those examinations, which you paid for, should make you steaming mad. That’s anger that can now be directed toward demanding accountability and change. 

Silence speaks loudly 

I had hoped the #MeToo movement had sufficiently washed the workplace of sexism and inappropriate behaviors. Without regard to gender, race or affectional preference, professionals deserve a safe and supportive workplace with merit-based advancement opportunities. The FDIC hasn’t caught up, apparently. 

I can’t imagine stories like I read in the WSJ emerging from our nation’s largest banks. (Consider that the code of ethics and behavior at one bank is 55 pages long.) 

If you look at the gender composition of your bank (beyond the C-Suite, that is), you will no doubt see that women are the majority. Those women are looking to their leaders to denounce the reported behaviors at the FDIC. 

This is not a report worthy of an eye-roll or bad jokes or a “boys-will-be-boys” dismissal. If you do not strongly and loudly condemn these behaviors, hopefully publicly, the implication of your silence will be tacit approval. I implore you to stand strong against these behaviors and ensure your policies and code of ethics align with your words.

Sexism, racism not partisan issues 

Congress loves a good scandal, especially one involving sex. The FDIC Chair, a Democrat, is on the hot seat now with Republican Senators demanding an inquiry and his resignation. That will last until the next scandal emerges, which will be any minute now. 

The workplace misconduct and instances of discrimination reported by the WSJ are not partisan issues, but they could very easily be spun that way as focus wanes if banking leaders don’t speak out to condemn the FDIC for proliferating a toxic culture. Washington has its own culture, and what’s been happening at the FDIC is likely due, in part, to the way people inside the Beltway think and act. 

Be better than them. 

Last week, Sen. John Kennedy (R. La.) asked: “What the hell is going on at the FDIC?” You should ask that question too, loudly. Then demand a comprehensive course correction.

Jacqueline Nasseff Hilgert was Editor-in-Chief of BankBeat from 2018 to 2022.