FDIC directors call for bank agency head to recuse himself from probe

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Republican board directors at the Federal Deposit Insurance Corporation have called on the agency’s chair to recuse himself from an investigation into allegations of widespread sexual harassment and discrimination at the US banking regulator.

FDIC chair Martin Gruenberg said this week the regulator had hired law firm BakerHostetler to lead an independent “top to bottom” assessment of its workplace following allegations that employees there had suffered harassment and misogyny over the course of several years.

Travis Hill, the FDIC vice-chair, and director Jonathan McKernan, called on Thursday for the investigation to be handled by the agency’s board, and not by management.

“The review must look at all conduct described in the recent news reports, in all parts of the organisation, including that of the chairman and general counsel, and they need to fully recuse [themselves] from the process,” Hill and McKernan wrote in a joint statement.

An FDIC spokesperson did not immediately respond to a request for comment from Gruenberg.

The pressure from the two Republicans on the five-person board represents the latest fallout from reports this week by The Wall Street Journal alleging a longstanding “toxic atmosphere” for women in the FDIC’s workplace and calling into question Gruenberg’s management.

Sherrod Brown, a Democratic senator from Ohio, called for the FDIC’s inspector-general to conduct an independent investigation into the workplace culture of the agency.

A senior official at the FDIC said the agency’s board had yet to meet in the wake of the allegations and board members were not consulted about the hiring of the outside law firm that is conducting the review.

The FDIC’s board had planned a meeting on Thursday, where the Republican board members planned to air their concerns about how Gruenberg and the agency’s management was handling the review. But the meeting was cancelled shortly before it was scheduled to begin.

“The board should have more information about the investigation than it does right now,” McKernan told the Financial Times on Thursday.

TD Cowen analyst Jaret Seiberg warned that Gruenberg resigning from the FDIC risked stalling pending policy changes, including the proposed implementation in the US of the Basel III banking standards. The requirements, which would force banks to bolster their financial reserves, have been opposed by many in the industry.

“This is because the FDIC board is split three to two, with Democrats holding the majority. The loss of a Democratic vote would result in an agency that is split two to two. That matters, as it takes a majority vote to finalise a rule,” Seiberg, who is managing director in TD Cowen’s Washington research group, wrote in a note to clients on Thursday.

Hill, who has voted against the Basel III proposals, would become FDIC chair if Gruenberg were to leave his role.