Republicans on FDIC board want full board to direct workplace investigation

FDIC
Federal Deposit Insurance Corp. Vice Chair Travis Hill and board member Jonathan McKernan asked that an independent investigation into allegations of widespread workplace misconduct at the agency be launched by and be accountable to the full board rather than leadership only. The statement came as the board delayed finalization of a final rule to replenish the Deposit Insurance Fund after this spring's bank failures.
Bloomberg News

WASHINGTON — Republicans on the Federal Deposit Insurance Corp. board of directors are asking that an independent investigation into allegations of sexual harassment and other inappropriate workplace incidents be accountable to the full board, rather than just the chair and staff.

FDIC Vice Chairman Travis Hill and Director Jonathan McKernan issued a statement saying they want to see the scope of an independent review of the allegations — announced by Chairman Martin Gruenberg earlier in the week — prescribed by the bipartisan FDIC board. They added that FDIC management, including Gruenberg and the agency's general counsel, should not be part of the investigation.

"The review must look at all conduct described in the recent news reports, in all parts of the organization, including that of the Chairman and General Counsel, and they need to fully recuse [themselves] from the process," they wrote in a release "The FDIC board, not FDIC management, should determine the scope of the investigation, the appropriate structure for day-to-day direction of the review, and who conducts the inquiry."

The statement comes as a board meeting scheduled for Thursday morning was abruptly postponed. The FDIC had been slated to hold an open board meeting to finalize a rule to replenish the agency's deposit insurance fund, originally proposed in May, fresh off the heels of March's banking turmoil. 

Hill and McKernan released a statement Wednesday saying the board should be kept informed of the independent review. Thursday's statement indicates the Republican board members want to have an active hand in the independent investigation into the agency's workplace culture.

The controversy could derail the various regulations pending at the agency. Industry expert Jaret Seiberg of TD Cowen, however, says that Chairman Gruenberg is not likely to vacate despite the turmoil. 

"We are dubious that Gruenberg will leave," he wrote in a note. "Democrats will want him to remain in place to ensure Team Biden can continue to advance its policy agenda through the election."

While Gruenberg is likely to see through important regulation like capital hikes and long-term debt for big banks, the rules could be significantly moderated before they get a final vote. Statements by Federal Reserve Vice Chair for Supervision Michael Barr at this week's hearings suggest political pressure has the agencies considering significant changes to the rules as proposed. Seiberg thinks they might even go further.

"Regulators may even withdraw the proposal and start over given how questions have been raised about its impact on lending and the economy," he said.

The workplace allegations come as his agency is set to finalize major bank regulatory overhauls, including the Basel III endgame capital proposal, that have drawn fierce condemnation from banks. Bank trade groups have launched aggressive public relations campaigns opposing capital hikes aligned with Basel committee standards. Banking groups have raised their objections in multiple venues, hinting that they may even challenge the procedural soundness of certain rules in court.

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