White House calls for fresh start at FDIC amid sexual harassment scandal

The White House believes the US Federal Deposit Insurance Corporation (FDIC) needs a "fresh start" with new leadership free of the agency's long-standing cultural issues, a White House official said on Tuesday. This comes after FDIC Chair Martin Gruenberg announced his resignation amid a sexual harassment scandal.

Gruenberg, who has been involved in controversy for months, announced on Monday that he will step down after the Senate confirms a successor. His resignation could imperil upcoming bank capital increases and other major Wall Street rules championed by Democrats. With only six months until the presidential election in the United States, the Biden administration is under pressure to pick a replacement quickly to keep its financial reform agenda on track.

Insiders believe the White House will pick a female current federal employee to speed up the Senate approval process and fix the agency's corrosive culture. "If the White House announces a nominee tomorrow, the earliest we could expect a Senate floor vote would be September," writes Brian Gardner, Stifel Chief Washington Policy Strategist.

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The administration is aware of the Senate's tight schedule and plans to bring a nominee to the Senate Banking Committee as soon as possible, according to the individual, who requested anonymity. Despite the crisis that erupted in November, Gruenberg, a Democrat, refused to retire. Gruenberg's decision appears to have been prompted by a statement issued Monday by Senate Banking Chair Sherrod Brown calling for fresh leadership.

The FDIC, a key bank regulator, is at a critical juncture as regional banks deal with persistent stress from last year's upheavals. The agency is also finalising significant new regulations for Wall Street banks, including capital increases. To replace Gruenberg without handing over control to Republicans, the Democratic-controlled Senate must confirm the new candidate.

A recent independent assessment revealed widespread misbehaviour at the FDIC that had gone unnoticed for years, citing occasions where Gruenberg, who had led the agency for over two decades, exhibited aggressive behaviour toward subordinates. This scandal, along with election uncertainties, may dissuade prospective candidates, analysts say.

Isaac Boltansky, BTIG's Director of Policy Research, raised concerns: "Finding a suitable candidate who can secure the necessary votes quickly, and whether that candidate would even be interested, is uncertain."

Potential nominees include Christy Goldsmith Romero of the Commodity Futures Trading Commission (CFTC), who is being re-nominated and may be quickly reassigned to the FDIC job, according to sources. Nellie Liang, Treasury Undersecretary for Domestic Finance, and Adrienne Harris, Superintendent of the New York State Department of Financial Services, are both considered good contenders, albeit Harris is not confirmed by the Senate.

Gruenberg, 71, is the FDIC's longest-standing board member, having joined the agency in 2005 and twice serving as chair. While he was not directly responsible for the agency's cultural concerns, he apologized for both misconduct during his term and his behaviour.

If Gruenberg steps down without a confirmed successor, leadership will fall back on Republican Vice Chair Travis Hill, resulting in a 2-2 gridlock that could postpone crucial regulatory changes indefinitely. These include Basel capital increases, long-term debt requirements for lenders, pay restrictions for bank executives and adjustments to bank merger policies.

White House Press Secretary Karine Jean-Pierre emphasized on Tuesday that President Biden is "taking this very seriously."

(With inputs from Reuters)