The Federal Deposit Insurance Corporation (FDIC) is facing its most important regulatory moment since the 2008 financial crisis, pushing for a sweeping overhaul of how banks are regulated in the wake of last spring's regional bank crisis.
But a Wall Street Journal report detailing a toxic work environment at the Washington agency has thrown the regulator into turmoil.
FDIC Chair Martin Gruenberg found himself in the hot seat this week, fielding multiple questions about his organization's culture from members of the Senate Banking Committee and House Financial Services Committee, derailing what was supposed to be a wide-ranging discussion about proper oversight of the banking industry.
This scrutiny of the FDIC comes as the agency tries, along with the Federal Reserve and OCC, to make the case for the bigger bank capital buffers they first proposed last July.
Read more: What is the FDIC, and how does it work?
In July, US banking regulators proposed raising capital requirements for banks by an aggregate 16%, widening the scope of the new rules to include banks with as low as $100 billion in assets.
Officials argued the changes were needed to make banks stronger and better prepared for shocks like the crisis of this spring, when the failures of Silicon Valley Bank, Signature Bank, and First Republic triggered deposit withdrawals.
Banks, their lobbyists, and some Republican lawmakers argue the proposal would curb lending and hurt the economy.
Even Fed Chair Jay Powell has hinted at reservations about the capital proposal and its impact. Powell said initially when the proposal came out in July that the Fed must consider the costs of higher capital and the risk of pushing activity into the shadow-banking system.
More recently, on Oct. 19, Powell said, "I do think [the regional banks'] business model is under pressure and I would not like to see us add to that by treating them exactly like G-SIBs [Global Systemically Important Banks] … They don't need exactly the same attention that G-SIBs gets."
Regulators recently extended a period of public comment to Jan. 16 so that all parties would have enough time to provide feedback.
Correcting the record
During his testimony on Wednesday, Gruenberg told lawmakers that he was "personally disturbed and deeply troubled" by the report in the Wall Street Journal, which detailed how sexual harassment forced a series of women to leave the agency. Gruenberg added that a third-party law firm would be conducting a review of the FDIC's culture.
Several lawmakers were less than satisfied with his responses.
Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, asked Gruenberg to provide the committee with steps the FDIC plans to take to address this issue in the next 15 days.
Gruenberg also provided testimony he later had to correct.
That moment came Wednesday, when the chairman of the House Financial Services Committee, Rep. Patrick McHenry (R-N.C.), asked Gruenberg if he'd ever been investigated for inappropriate conduct during his two decades at the regulator.
"No, Mr. Chairman," Gruenberg said.
After a break, he told lawmakers that he wanted to say more on the subject for the record.
"In 2008, I was interviewed pursuant to a review done in response to a concern raised by an employee, and I’m not aware of anything that came out of that review," Gruenberg said.
The Journal reported Wednesday that in 2008, when Gruenberg was vice chair of the FDIC, then-Chair Sheila Bair asked for an outside examination of an incident where he allegedly lost his temper with a female official. The Journal said the firm hired to do the review wrote a report, and that Bair spoke to Gruenberg about his conduct. Yahoo Finance reached out to Bair for comment but did not hear back.
Gruenberg did not provide his own details of what transpired before the House committee Wednesday, but he did say that the report about the 2008 matter would be shared with the committee, adding that no settlement resulted from that review.
Other FDIC board members also expressed their concerns on Wednesday regarding reports about the agency's culture.
In a joint statement from FDIC Vice Chairman Travis Hill and Director Jonathan McKernan, the FDIC said "it is vital" that the review of the Journal's reporting about a toxic work environment "be effectively overseen by the board and have the latitude and time needed to conduct a thorough, holistic review."
They added: "We have an obligation to ensure that the FDIC holds all responsible employees and managers accountable for any inappropriate conduct."