The report released Tuesday that chronicled yearslong harassment and abuse of employees at the FDIC is kicking off a new round of questions about the future of agency head Martin Gruenberg — with the fate of Biden-era regulators’ banking agenda hanging in the balance. The independent inquiry confirmed a workplace culture rife with pervasive sexual misconduct, discrimination and retaliation. The report by law firm Cleary Gottlieb Steen & Hamilton didn’t call for Gruenberg’s departure and said he wasn’t a root cause of the behavior. But the investigators pointedly questioned whether he had the “moral authority” to enact needed reforms at the agency. The report also detailed bad behavior by Gruenberg himself, detailing incidents as recently as May 2023, in which he lost his temper and berated staff in a “demeaning and inappropriate manner.” — Gruenberg, who was interviewed for the report, told investigators he couldn’t remember expressing anger toward staff. But he said in a message to employees on Tuesday that he accepted the investigation’s findings and is “ultimately responsible for everything that happens at our agency, including our workplace culture.” As MM previewed when the scandal first broke open last fall, the fight over Gruenberg’s future at the FDIC is inextricably linked with the ability of regulators — there and at other agencies — to finish a slate of tougher rules on banks before the November election. — Gruenberg’s vote on the FDIC board, in which Democrats have a 3-2 majority, is crucial to moving forward the capital requirements — known as Basel III Endgame — that the agency proposed alongside the Fed and OCC last year, although that proposal is already under siege. But other policies that fall along party lines — such as tougher standards for bank mergers — are also at risk of not being finalized if Gruenberg were to leave. — Republicans, who along with the banking industry oppose much of his agenda, said the report underscored their calls in recent months for Gruenberg to step down. The GOP lawmakers overseeing financial policy in Congress — Rep. Patrick McHenry and Sen. Tim Scott — were among those leading the charge to oust Gruenberg. — But there are also signs some of Gruenberg’s support could be cracking among Democrats. Rep. Bill Foster, a senior member of the House Financial Services Committee, became the first Democrat to call for Gruenberg to step down. It’s unclear if more will follow. — Progressive allies so far are standing by Gruenberg. Senate Banking Chair Sherrod Brown (D-Ohio) said he “must accept responsibility and must immediately work to make fundamental changes to the agency and its culture.” Sen. Elizabeth Warren (D-Mass.) told reporters she thought Gruenberg would be capable of implementing the recommendations from the independent investigation and had been “approaching it with the right attitude.” “The problems with the FDIC date back to Democratic and Republican administrations going back many, many years,” Warren said. “Chairman Gruenberg has welcomed this investigation, has made it clear that he accepts the findings and has committed to make changes at the agency.” Other allies, such as Brookings Institution fellow Aaron Klein and financial regulatory advocacy group Better Markets, said overall employee satisfaction rated highly under Gruenberg. — The optics are awkward for Democrats. Their calculus makes political sense — people MM spoke with thought the timeline for confirming a new Democratic chair would take too long to be ideal for the regulatory agenda — and Congress never seems to prioritize management qualities over policy bona fides. But it’s worth pointing out that the report details the kind of behavior that, if it happened at a private firm or under the watch of a Republican-run regulator, would cause them to pounce. President Joe Biden made a Day One promise to fire anyone in his administration who failed to treat others with respect. White House Press Secretary Karine Jean-Pierre declined to say whether Biden had confidence in Gruenberg’s leadership. But she noted that Gruenberg “apologized and has committed to the recommendations that have been provided by the independent report.” Absent a concerted push by Democrats, the FDIC chief is unlikely to step down. — The scrutiny isn’t about to let up. House lawmakers are set to gather later this week for a briefing directly from the outside investigators. McHenry vowed that his committee’s investigation would continue. And the FDIC’s internal watchdog is preparing a pair of reports on the workplace culture that are due out in the coming months. Most immediately, Gruenberg is set to be grilled by Republicans when he testifies before Congress alongside other regulators next week. HAPPY WEDNESDAY — Stay tuned to MM for coverage of this week’s Milken conference by Zach, and subscribe to Global Playbook for even more news from the event. Send tips to Zach at zwarmbrodt@politico.com, and reach Michael at mstratford@politico.com and Victoria at vguida@politico.com.
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