FDIC Chair Resigns: Inside the Report Leading to His Exit
A summary of the 234-page independent investigation into the FDIC workplace.
(Note - all views are those of Fintech Compliance Chronicles/my personal views and not affiliated with any other organization)
(Note 2 - In preparation for the launch of our premium edition, we are experimenting with a Substack-first model meaning this article will be posted here on Substack first and then shared the next day as a link in the outro of the next article on LinkedIn)
We had this article prepared for about a week and due to a variety of factors, were delayed in publishing it. Then yesterday, FDIC Chair Martin Gruenberg stepped down, stating "In light of recent events, I am prepared to step down from my responsibilities once a successor is confirmed," he said in a release. "Until that time, I will continue to fulfill my responsibilities as Chairman of the FDIC, including the transformation of the FDIC’s workplace culture." News articles briefly dwelled on the report, but focused equally on the implications for regulation of banks. There is a time and place for that, but in today’s newsletter we focus on the report itself. Trigger Warning - the report contains mention of sexual harassment, stalking, assault, racism, and other forms of discrimination. The original article we drafted has been slightly updated to account for Gruenberg’s resignation, and follows:
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Of the four major US federal banking regulatory examiners (Fed, FDIC, CFPB, OCC), I’ve observed the FDIC has gotten a bad rap from the industry as of late (the CFPB seems to have been fighting for its existence since it was created, but that’s another story). However, they appear to be the only ones that have a mechanism to self-assess their performance and actually publish their results (on their own website). As for the rest of these regulators, any feedback about their operations can only be found on GAO websites. One other example of this self-assessment is last year, shortly after the SVB crisis, where they went on to perform a self-review of what they missed and could have done better in the form of a 63-page report - a publication we covered last year.
That is about where the good news ends for the institution. A new report was released a few weeks back, one contains details that any organization - regulator or otherwise - would not be proud of. Sometime last year, the FDIC engaged independent law firm Cleary Gottlieb Steen and Hamilton (subsequently referred to as “Cleary” in this article) to perform a review of their workplace. Specifically, as noted in the report by the firm:
"The Special Review Committee of the FDIC’s Board of Directors appointed our firm to conduct an independent review of allegations of sexual harassment and interpersonal misconduct at the FDIC, including hostile, abusive, unprofessional, or inappropriate conduct, as well as management’s response to these allegations. The review also covered the FDIC’s workplace culture, including any practices that might discourage or deter the reporting of this type of misconduct.1 We have completed our review, and find that, 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. We also find that a patriarchal, insular, and risk-averse culture has contributed to the conditions that allowed for this workplace misconduct to occur and persist, and that a widespread fear of retaliation, as well as a lack of clarity and credibility around internal reporting channels, has led to an under-reporting of workplace misconduct over the years. Management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective. To fully and effectively address this conduct and these conditions, we believe cultural and structural change is necessary.”
This report is 234 pages long. According to the opening summary, the report comes from the accounts of over 500 employees and references incidents that took place in years past and some that occurred as recently as a few weeks ago.
In this week’s edition we will dive into this report, which is one of the most difficult “long reads” I’ve had to summarize while writing this newsletter. One thing to point out, as the opening summary does, is that the process leading up to this report kicked off with a Wall Street Journal headline dated November 13, 2023 entitled “Strip Clubs, Lewd Photos and a Boozy Hotel: The Toxic Atmosphere at Bank Regulator FDIC” which in its sub-title emphasized another terrible effect of all this - “Employees say sexual harassment, misogyny pervade federal agency tasked with ensuring stability of nation’s banks, driving women to leave.” So given this essentially all started from a leak/whistleblower, I’ll revise my opening statement. Let’s not give the FDIC too much credit here - I’d imagine that were it not for the source(s) that shared the details leading to this story, the FDIC would probably not have commissioned an independent review which they did in December 2023 after this and a few other reports came out.
The report starts off by setting the stage - when Cleary was appointed, they set up a hotline, collected documents, and conducted witness interviews. The report also recaps the structure of the organization, relevant policies, procedures and trainings, and how reports of misconduct are handled internally and externally, including at various levels of the government. As with most organizations, the FDIC’s employee survey results are referenced (conducted by the Office of Personnel Management), showing a massive decline in favorability between 2010 and 2020 (from 88% in 2010 to 62% by 2023). Also similar to many organizations, the FDIC had numerous initiatives to improve workplace culture, including employee resource groups - the report discusses instances where those groups/members of those groups (i.e. the Chairman’s Diversity Advisory Council) tried to effect change in areas like discrimination and bullying, only to be ignored, shot down and/or retaliated against. Some of the investigations performed by the Office of Inspector General in 2020, 2021 and 2023 are also referenced including the FDIC even admitting to some of the high level findings, but it appears that ultimately nothing changed as evidenced by the next part of the report, the “Factual findings.”
One caveat as we jump into this, is that a good chunk of what follows is redacted. But to their credit, much of what remains is still pretty shocking.
Regarding the FDIC Chairman, Martin Gruenberg - a number of instances across his over 18 years as either Chair or Board member/both in the FDIC paints a picture of a leader who had anger issues and berated individuals - while it looks like this wasn’t an everyday thing, sometimes just a handful of incidents is enough to permanently ruin your reputation amongst your employees as evidenced in the below example:
In May 2023, there was a meeting that was intended to cover corporate governance-related regulations but Chairman Gruenberg switched topics and began to talk about bank failures. According to one of the participants in the meeting, Chairman Gruenberg then “went on a rant” for 45 minutes, directing his “ire” at a particular individual, and also threatened that he could “fire” or “reassign” anybody he wanted. One participant described it as “45 minutes of vitriol” where no one else could say anything. As part of our review, we obtained Teams message exchanges on that day that corroborated this account. The meeting was so uncomfortable that the person who felt targeted by Chairman Gruenberg sent Teams messages to the telephonic meeting participants (who had joined the meeting thinking that it would be about corporate governance regulations) telling them that they could “drop.” The individual also sent other contemporaneous Teams messages to other meeting participants describing Chairman Gruenberg’s conduct as “embarrassing and inappropriate,” saying “[I] will be demoted,” and stating “if we are going to go through this same thing every time we brief him, [I] am out.” Two participants described the meeting as “tough” and “inappropriate” in contemporaneous Teams messages. The contemporaneous Teams exchanges also corroborated that the meeting went on for a long period of time, approximately 45 minutes. When asked about this meeting, Chairman Gruenberg had a general recollection of a meeting discussing these subjects, but stated that he does not recall getting upset or angry.
Regarding workplace culture, the investigation looked at the organization’s ability to promote fairness, accountability, competence, effectiveness, integrity, teamwork. Things like favoritism, fear of retaliation, lack of transparency, lack of emphasis on leadership skills (while instead promoting and overindexing technical skills), constant pushback, yelling, and hierarchical culture were all referenced. The “teamwork” section is where the offenses start to get ugly, with the focus on the FDIC’s training center for examiners, the Seidman Center in Arlington, VA (which was called out by some in Congress when it was first opened, as reported by the Chicago Tribune in 1991, for being an example of the excess of government):
“Some FDIC employees described a pattern at the Seidman Center [the FDIC’s training center for new examiners, including a number that were coming directly out of college] of people engaging in “excessive drinking” to the point where people “got drunk,” vomited, and/or would pass out. FDIC employees cited examples of employees often being “hungover” when attending classes. A number of FDIC employees specified that a lot of the drinking took place on the rooftop of the Seidman Center…Certain FDIC employees have reported being sexually harassed at the Seidman Center, including being subject to unwanted advances and/or gifts…There have been two official reports of sexual assaults at the Seidman Center, but we were unable to determine if they overlap with the two reported to our hotline based on the information available to us.
Perhaps the most damning section of the report follows, entitled “Allegations of Interpersonal Misconduct”
One FDIC employee reported to us how she feared for her own physical safety after a more senior colleague who had been stalking her continued to text her even after she made a complaint against him for, among other things, sending unwelcome sexualized text messages that feature partially naked women engaging in sexual acts.
Another, while on detail in a field office, reported receiving a picture of an FDIC senior examiner’s private parts out of the blue, only to be told later by others in that field office that she should stay away from him because he had a “reputation.”
An employee reported to us that a former executive in headquarters grabbed her and rubbed himself on her after a happy hour.
Two noncommissioned examiners reported to us how a commissioned examiner asked them whether they shaved their legs and told them jokes with sexual innuendos, while telling them if they complained, “remember who is giving you feedback” and that they had to pay their dues.
An employee told us about how an executive, after they had met for lunch to discuss her request that he serve as her sponsor for a program, asked how far away she lives and suggested, “we can get there and back before the end of the day.”
Women in one field office reported to us routinely having endured comments from their supervisor about their breasts and legs, his sex life, and rankings of women colleagues based on appearance.
An employee reported that a woman outside of the FDIC involved in an exam, after saying she would be unavailable for a follow-up review because she was expecting a baby around then, was told “[w]ell maybe if you had kept your legs closed, you would be able to help out.”
Individuals told us that a Field Office Supervisor made homophobic comments, including referring to gay men as “little girls,” and had combative relationships with men who were gay, which was so well-known that one gay man in the office hid this fact because he thought, “I better not be gay in this office or I’ll have the same dynamic [another gay employee] and the Field Office Supervisor have.”
A Hispanic employee reported to us that early on in their career, they were subjected to comments such as “What’s the FDIC doing hiring people who can’t speak English?” and were asked by a colleague to recite the Pledge of Allegiance to prove that they were American.
A Black employee reported to us that she was told incorrectly, before she took and passed the exam to become a commissioned bank examiner, that no Black employee had passed the exam on the first try and the only way Black employees became commissioned examiners was through completing individual development plans, and she routinely applied for promotions and was passed over in favor of White colleagues.
Individuals told us about the experiences of women (in particular women who have children) in two offices in a region, including being subjected to comments such as “you’re a mother now, you don’t belong in the workplace.”
46 of these anecdotes/allegations are expanded in further detail in the report’s Appendix. You can read the rest of the report for yourself - from this point, the FDIC shares some specific anecdotes in regards to policies, procedures, training, reporting channels, and settlements/discipline. It also dedicates some time to coming up with a root cause analysis of why all of this happened and some recommendations.
As we drafted this, Gruenberg announced his resignation yesterday. The impact of a potential resignation was weighed previously by Michele Alt, who is one of my favorite experts to turn to on all regulatory matters in financial services - “Republicans are calling on Chair Gruenberg to resign. So far Democrats are sticking by Gruenberg. Democrats apparently fear that the FDIC’s regulatory agenda would be derailed if Republican Vice Chair Travis Hill takes the agency’s helm. But as I explained to Claire Williams at American Banker, that concern is overblown. Only four major items remain on the FDIC’s formal policymaking agenda for 2024." Now that he has, let us see if this holds true as the topic not mentioned by Michele is the proposal for big banks to hold more capital which is a direct result of the SVB crisis last year - and all of the big 3 regulators are on board - FDIC, Fed, OCC.
Closing thoughts - this is a horrifying story, just as it would be in any industry and in any part of the world. Why is it relevant to those in the fintech/financial services space and to compliance professionals? Unless you’re someone who doesn’t believe regulators provide any value, from our perspective any damage to the FDIC’s reputation as a result of their revelation is nothing to celebrate as these practices occurring could have a cascading effect. The regulators sometimes are viewed as the “enemy”, but the truth is that they are an essential part of the banking ecosystem, as much as consumers, businesses, institutions and third parties that engage with these players. As the WSJ initial report on this story noted, this culture has caused women in particular to leave the FDIC in droves and I can imagine many more will follow, meaning a massive loss of talent. Gruenberg has resigned, but there were folks much more culpable than him who are likely still in the organization. If the FDIC is not doing their job correctly by means of not being able to recruit, employ and retain the best talent including women, it creates gaps in the system and puts every one of the aforementioned parties at risk - no matter whether the lack of performance is due to technical reasons or in this case, human/moral/ethical/environmental reasons.
In a nutshell, an examiner risks not being taken seriously by their examinees when their own ethics are brought into question.