By Douglas Gillison and Pete Schroeder
WASHINGTON (Reuters) -The Federal Deposit Insurance Corporation must make sweeping changes to address widespread sexual harassment and other misconduct, according to an independent report released on Tuesday that raises questions about the future of the banking regulator's leadership.
The report, prompted by a Wall Street Journal investigation, cited accounts from more than 500 people, including some who alleged FDIC Chair Martin Gruenberg had engaged in bullying and verbal abuse.
Overall, the report by law firm Cleary Gottlieb paints a picture of an agency at which sexual harassment, racial discrimination and bullying were pervasive at every level and tolerated by senior leaders for years, while complaints about misconduct were met with retaliation.
"For far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct," said the report, adding that those accused of misconduct were frequently reassigned new roles.
Underscoring the agency's toxic culture, officials tasked with addressing the problems exposed by the WSJ reports were themselves the subject of misconduct claims, the Cleary Gottlieb report found.
The findings sparked renewed calls for the ouster of Gruenberg, a Democrat who has been a senior leader at the agency for nearly two decades.
Representative Patrick McHenry, a Republican who chairs the House Financial Services Committee, called for Gruenberg's resignation following the report, saying it made clear the agency needs new leadership.
"The FDIC needs to be fixed. The women and men who work there deserve better,” Sherrod Brown, chair of the Senate Banking, Housing, and Urban Affairs Committee, said in a statement. “Chair Gruenberg must accept responsibility and must immediately work to make fundamental changes to the agency and its culture."
Some employees described Gruenberg as "harsh" and "aggressive", as well as prone to losing his temper, the report said. In speaking with investigators, Gruenberg said he never recalled acting inappropriately. The report said some employees reported positive interactions with him and saw his nature as more "prosecutorial."
In a statement to staff, Gruenberg said the report was "sobering" and he vowed to implement its recommendations.
He said he was ultimately responsible for everything that happened at the agency and apologized for any shortcomings. "I again want to express how very sorry I am," he added.
LEADERSHIP CLOUD
The report recommends the appointment of new officials devoted to changing the FDIC's culture and hiring an independent third party to assist in the transition, although it did not consider whether top leaders should resign.
It also called on the agency to establish an anonymous hotline to report misconduct and abuse, develop a more timely and transparent process for handling complaints, and take steps to ensure victims are protected and supported.
While the report found that Gruenberg's aggressive conduct was not a root cause of the more severe issues at the agency, it was skeptical of his ability to oversee the necessary dramatic overhaul.
"As the FDIC faces a crisis relating to its workplace culture, Chairman Gruenberg’s reputation raises questions about the credibility of the leadership’s response to the crisis and the 'moral authority' to lead a cultural transformation," the report stated.
The departure of Gruenberg, who was appointed by President Joe Biden in 2022, could imperil the administration's efforts to impose stricter financial rules, including a pending regulatory proposal on bank capital requirements, which has sparked a backlash from Republicans and industry representatives.
A White House spokesperson did not respond to a request for comment.
If Gruenberg steps down or is removed, agency bylaws stipulate that FDIC Vice Chair Travis Hill, a Republican, take over, and the agency's board would be evenly split between Republicans and Democrats.
(Reporting by Douglas Gillison and Pete Schroeder; Additional reporting by Dan Whitcomb; Editing by Michelle Price, Paul Simao and Lisa Shumaker)
