White House, Sherrod Brown weigh in on allegations against FDIC

Bloomberg News

WASHINGTON — Sen. Sherrod Brown, D-Ohio, has joined leading Republicans in calling for an independent investigation into the Federal Deposit Insurance Corp. following allegations of deep problems in the agency's corporate culture and questions whether its chairman played a role in perpetuating those problems. 

FDIC Chairman Martin Gruenberg took heat from Republican lawmakers in two grueling days of congressional testimony this week over articles by The Wall Street Journal describing a sexist party culture at the agency that drove out female bank examiners and has long been ignored by management. 

On Thursday, the FDIC canceled a public board meeting on a special assessment fee for banks in the aftermath of this spring's banking crisis. The agency didn't give a reason for the decision, which was announced 15 minutes after that meeting was supposed to begin.

"The reports are extremely concerning," Brown, the Senate Banking Committee's chairman, said in a statement. "I am calling for the FDIC's Office of the Inspector General to conduct an independent and thorough investigation into the workplace culture at the agency."

Brown  is the first Democrat to officially call for an independent investigation, giving more credence to congressional pressure on the FDIC. The concerns about the FDIC as a workplace coincide with its push for the international Basel III standards, which would raise capital requirements for many large banks. 

A White House official echoed concerns about the allegations to American Banker, and urged the Senate to "swiftly confirm our FDIC Inspector General nominee, who is charged with critical oversight responsibilities." 

Because Republicans and the banking industry have pushed back so vehemently against the rule, the outrage over working conditions at the agency could be seen as an effort to undermine Gruenberg and his rulemaking effort. Brown's statement makes the FDIC sidestepping an independent investigation much more difficult. 

Gruenberg, earlier in the week, said that the FDIC has hired a third-party law firm to conduct an independent review. The study is expected to be completed within 90 days, he said, and he added that agency management would assure employees that they could raise complaints confidentiality. 

Rep. Patrick McHenry, R-N.C., chairman of the House Financial Services Committee, earlier Thursday released a harsher statement on Gruenberg's time at the FDIC. 

"Under his leadership, the FDIC is at best preoccupied with this sideshow and at worst compromised," McHenry said. "Chair Gruenberg clearly bears responsibility as these allegations occurred during his tenure as either a board member or chairman. There is no excuse for this alleged behavior, which is why the Inspector General must brief the Committee as soon as possible." 

During a hearing Wednesday before the House panel, Gruenberg answered a question from McHenry on whether Gruenberg had ever been investigated for misconduct himself with a denial. But later in the hearing, Gruenberg said that he was investigated in 2008, although that complaint was eventually dropped. 

Sen. Tim Scott, R-S.C., Senate Banking Committee ranking member, stopped just short of calling for Gruenberg's resignation, but said that Gruenberg should "seriously consider if he possesses the leadership the FDIC requires at this moment to restore confidence in the agency." 

"The reports of sexual harassment and a toxic workplace culture at the FDIC, as well as the mismanagement allegations against Chair Gruenberg, are alarming and unacceptable of any organization – let alone an agency of the United States Government," Scott said in a statement. "If the FDIC fails to protect its own employees, how can we trust its mission of ensuring the safety and soundness of our financial system is being successfully carried out? These allegations deserve a thorough and independent review followed by forceful action, and I look forward to being kept informed on this matter."