The FDIC Frat House Culture of Sexual Harassment

The Federal Deposit Insurance Corporation plays two complementary roles. First, it insures deposits of up to $250,000 per bank, pays out depositors when banks fail, and restructures failing banks. But it plays an even more important role as one of the three main agencies, along with the Federal Reserve and the Comptroller of the Currency, that set the regulatory policies of banks in general.

The FDIC, whose insurance funds are at risk in the event of a bank failure, is typically the toughest of these agencies. Current FDIC Chairman Martin Gruenberg, a former aide to Senator Paul Sarbanes, was a knowledgeable, incorruptible and public-minded regulator. But now Grünberg’s job is at stake.

Considering what the FDIC actually does, many of them are excursions to investigate banks. The examiners, almost two-thirds of whom are men, travel, stay in hotels, and many have a habit of grossly searching for sex from their female colleagues.

In July 2020, the FDIC’s Office of Inspector General released a report on sexual harassment at the agency. The report called for systematic reforms. This week, a more detailed report from an outside law firm, Cleary Gottlieb Steen & Hamilton, that interviewed more than 500 current and former FDIC employees added sickening details.

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An employee reported that a supervisor sent her photos of his penis via text message. Another was stalked by a colleague who regularly texted her photos of sexual acts.

An FDIC-funded hotel where new examiners stay during their Financial Institution Specialist (FIS) training became so notorious for drunken parties that one trainee wrote, “If you didn’t puke off the roof, did you ever really?” “an FIS?”

Few women complained because they did not expect management to take the complaints seriously. The report quotes an FDIC manager saying that the standard approach to responding to complaints is to “pay, promote or transfer” offenders. Of 92 sexual harassment complaints that made it to a formal review process between 2015 and 2023, “not a single one resulted in dismissal, a reduction in grade or salary, or discipline more serious than suspension.” Only two did led to temporary suspensions.

Grünberg is not accused of sexual misconduct himself, but rather of not taking the need for drastic reforms seriously. And here the plot thickens.

Republican leader Jelena McWilliams, who served from 2018 to 2022, had more than three years to reform the frat boy behavior found in the IG report. On paper, she accepted the IG’s recommendations, but nothing changed. Their policy director, Travis Hill, now deputy chairman of the FDIC, also did nothing.

If Gruenberg is forced to resign, the FDIC will go from being the strongest banking regulator to being the weakest.

In 2023, Grünberg returned to the chairmanship, which he held from 2011 to 2018 under President Obama. Last November, The Wall Street Journal published a lengthy exposé titled “Strip Clubs, Lewd Photos, and a Crazy Hotel: The Toxic Atmosphere at the FDIC,” with lurid details.

Republicans on the panel then called for a reconsideration of the harassment issue and successfully demanded that Grünberg recuse himself from the proceedings. Then they hired Cleary Gottlieb.

Hill was self-serving, of course, because if Gruenberg is forced out, he will become acting chairman for the rest of this year, a period when several key banking regulations are in effect. Cleary Gottlieb also has extensive conflicts of interest, as the company has many banking customers who would like to see a Republican-led FDIC block the bank pending regulation. Hill has already spoken out against stricter capital standards for banks.

In choosing a bank-friendly law firm, Republicans must have hoped that Cleary Gottlieb would explicitly call for Grünberg’s resignation. But while the report criticized Grünberg’s inaction and denounced his reputation as temperamental, it did not recommend his ouster.

Gruenberg will testify next week before both the House Financial Services Committee, chaired by North Carolina Republican Patrick McHenry, and the Senate Banking Committee, chaired by Sen. Sherrod Brown (D-OH). It won’t be pleasant.

He currently enjoys the support of key Democrats in Congress as well as the Biden White House. Both Senator Brown and the highest-ranking Democrat on financial services in the House of Representatives, Representative Maxine Waters (D-CA), were critical but did not call for Gruenberg to resign.

Here lies the Democrats’ political dilemma: They cannot and should not tolerate sexual harassment. But if Gruenberg is forced to resign, Hill will become acting chairman for the remainder of Biden’s term, the FDIC board will be deadlocked at 2-2, and the FDIC will go from being the strongest banking regulator to being the weakest.

In addition to the capital standard rule, several other regulatory issues are at play, including better merger rules to prevent further concentration and executive compensation rules to prevent excessive risk-taking motivated by executives’ greed for higher salaries. These would be dead.

The attempt to force Grünberg out is a party political success. But the pattern of sexual harassment at the FDIC is all too real; and despite the 2020 IG report, it continued to simmer under Gruenberg’s watch. As noted, Gruenberg was also FDIC chairman from 2011 to 2018, a period that was the subject of the allegations, and the situation was not addressed then either. (His FDIC board service dates back to 2005; he even briefly served as acting chairman under George W. Bush before Sheila Bair was confirmed.)

It’s not as if the Republicans, the party of serial sexual predator Donald Trump, have ever made sexual harassment in other agencies an issue. But Democrats, to their credit, are taking the problem of sexual harassment seriously, and it doesn’t work to excuse Gruenberg’s decline in leadership just because his Republican predecessor also failed to act.

After the last report was published, Gruenberg sent FDIC employees a letter with a bitter apology. “To everyone who has experienced sexual harassment or other misconduct at the FDIC, I would like to reiterate how deeply sorry I am. I would also like to apologize for any shortcomings on my part. As CEO, I am ultimately responsible for everything that happens at our agency, including our workplace culture,” he wrote, adding, “We will spare no effort to create a workplace where every employee feels safe, valued and respected .”

His critics say he’s a little late. His defenders say the Republicans on the FDIC are opportunists and hypocrites. We’ll soon find out whether key Democrats are willing to give Grünberg time to follow through on his promise.