FDIC’s Gruenberg Pledges to Fix Agency’s Culture Despite Exit Calls

(Bloomberg) -- The embattled head of the Federal Deposit Insurance Corp. pledged to overhaul the regulator’s culture, eschewing calls to step down after a probe found that for years some employees endured sexual harassment and discrimination on the job.

After facing almost a week of political pressure from several top Republican lawmakers to resign, Martin Gruenberg said he’s committed to fixing the agency’s problems. Gruenberg also said he takes “full responsibility” in remarks prepared for a congressional hearing on Wednesday. 

“I also acknowledge my own failures as chairman, both in failing to recognize how my temperament in meetings impacted others and for not having identified deeper cultural issues at the FDIC sooner,” he plans to tell the House Financial Services Committee. “I am personally committed to addressing these issues.” 

The testimony Wednesday will be Gruenberg’s first since a law firm released a report last week based on complaints from more than 500 people about the agency’s workplace, and questioned whether he was the best person to lead a “cultural and structural transformation.” The FDIC had tapped Cleary Gottlieb Steen & Hamilton to investigate after the Wall Street Journal reported on a “sexualized, boys’ club environment” that had contributed to the departures of female bank examiners. 

Read More: FDIC Probe Finds Credible Allegations of Toxic Workplace

In his remarks, Gruenberg said the agency is preparing to hire a “transformation monitor” and an independent expert to oversee changes, as the law firm recommended. He said the FDIC may establish a new independent Office of Professional Conduct to report to the agency’s board of directors.

Meanwhile, the FDIC chair said the banking industry faces “significant downside risks” from inflation, rate volatility and geopolitical issues. “Early reports from the first quarter of 2024 indicate that net interest margin pressures continued, and higher market interest rates likely have reduced bank securities values, increasing unrealized losses,” Gruenberg said. 

Areas of Concern

The Federal Reserve vice chair for supervision, Michael Barr, also plans to flag areas of concern for the industry on Wednesday. In remarks prepared for the hearing, Barr said rising delinquency rates for certain commercial real estate loans, including those backed by offices, as well as credit-card and auto loans have prompted banks to increase loan loss provisions.

“On this basis, combined with their capital positions, the banking sector as a whole should be prepared to absorb loan losses that may materialize and continue fulfilling its vital role providing credit to households and businesses,” Barr said. He added that examiners have strengthened supervision of lenders with large unrealized losses on securities or high exposure to commercial real estate.

Read More: Fed Flags Rising Delinquencies in Commercial Real Estate Loans

Barr added that the central bank is closely analyzing feedback it’s received on a controversial plan from US regulators to require Wall Street banks to hold significantly more capital as a buffer against any potential losses. “I expect we will have a set of broad, material changes to the proposal that allow us to have a broad consensus in moving the proposal forward,” he said in the remarks, echoing previous comments. 

The Fed, FDIC and the Office of the Comptroller of the Currency are working to advance their landmark capital plan, despite calls from some critics to scrap it. Some officials have discussed finalizing a revised version of the July 2023 plan as soon as this August, Bloomberg News has reported.

(Updates with comments from Fed official starting in seventh paragraph.)

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