FDIC hires law firm to investigate allegations of ‘toxic atmosphere’

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The Federal Deposit Insurance Corporation on Monday hired law firm BakerHostetler to review allegations of widespread sexual harassment, inappropriate behaviour and discrimination at the US banking regulator.

In a video message sent to staff on Monday, FDIC chair Martin Gruenberg called the reports “serious” and vowed that the agency would not “turn a blind eye”. He reiterated a previous call for staff with evidence of inappropriate behaviour to come forward.

Gruenberg said BakerHostetler would lead an independent “top to bottom” assessment of the FDIC’s workplace and the alleged conduct.

“Harassment or discriminatory behaviour at the FDIC is completely unacceptable,” Gruenberg said in the video, a transcript of which was reviewed by the Financial Times. “To the extent the assessment identifies further actions we can take to strengthen our agency, we won’t hesitate to implement them.”

The independent review follows the publication on Monday of a story in The Wall Street Journal that detailed more than a decade of what it described as abusive incidents and a “toxic atmosphere” for women in the regulator’s workplace, including unwanted sexual advances. The WSJ said the FDIC’s female staff often left the agency because of systemic discrimination against women.

The incidents in the article dated back to 2010. Gruenberg, who has directed the agency since early 2022, was previously the head of the FDIC from 2011 to 2018.

In 2020, the FDIC’s inspector-general found that the agency’s sexual harassment policies were inadequate at preventing abuse. The FDIC at the time vowed to improve its practices.

“Harassment in any form is contrary to the FDIC’s values and our deep commitment to fostering a diverse and inclusive workplace,” the FDIC said in a statement to the FT. The agency said that it had implemented various programmes and procedures to fight harassment in its workplace: “When we identify misconduct, we investigate and take appropriate action.”

Gruenberg is likely to face questions about the report when he testifies on Tuesday, alongside other top US bank regulators, in front of the Senate banking committee in a pre-scheduled hearing on Wall Street regulation.

Even before the latest allegations of misconduct, the FDIC and other bank regulators have come under intense scrutiny in the wake of three of the four largest failures of federally insured banks in US history — Silicon Valley Bank, Signature Bank and First Republic — earlier this year.

Gruenberg, as well as Michael Barr, the Federal Reserve’s vice-chair for supervision, are expected to face questioning about sweeping changes that government authorities have proposed to shore up capital rules for large lenders.