Federal Deposit Insurance Corporation leaders say employees are suffering from low morale, and that the agency is facing long-term recruitment challenges, as it deals with reports of a toxic workplace environment.

Officials overseeing reforms at FDIC told members of the House Financial Services Committee on Wednesday that the agency needs a “fresh start,” after an independent investigation substantiated claims of a toxic workplace.

Jonathan McKernan, co-chair of a special committee FDIC created to oversee an independent review of the agency’s workplace culture, said FDIC employees are “exhausted and distracted,” and face a “significant headwind” to do their jobs.

“We need a fresh start sooner rather than later. That’s important to establish credibility. It’s important to bring in someone that has a moral authority to really push change. And it’s important that we have clean hands to deal with our legacy issues,” McKernan said.

Lawmakers, however, are casting doubts on FDIC’s ability to implement workplace reforms with FDIC Chairman Martin Gruenberg remaining on the job.

Gruenberg said last month he’ll stay at FDIC until the Senate confirms his successor. But Committee Chairman Patrick McHenry (R-N.C.) is calling on President Joe Biden to fire him immediately, and allow an acting chairperson to take over.

“There’s a clear succession plan in place. The agency’s operations would continue unabated if you rightfully stepped down today,” McHenry said.

Gruenberg has held leadership positions at FDIC for nearly 20 years.

An independent report into FDIC’s workplace culture said Gruenberg’s longstanding tenure at the agency “may hinder his ability to establish trust and confidence in leading meaningful culture change.”

“For these challenges to be overcome, there must at least be a genuine and sustained commitment to lead a culture change, accompanied by a recognition and acknowledgement that such change is necessary because of failings of the past, including his own,” the report states.

FDIC created a special committee to oversee an independent review of FDIC’s workplace culture, following several reports in the Wall Street Journal in November 2023.

Last month, FDIC publicly released a report led by the law firm Cleary Gottlieb Steen & Hamilton.

The report includes cases of stalking, harassment, homophobia and other violations of employment regulations, based on more than 500 complaints from employees.

According to the Associated Press, an FDIC employee told investigators she was stalked by a coworker and faced harassment, even after complaining about his behavior.

The report also mentions a supervisor in a field office referring to gay men as “little girls,” and a female field examiner who said she received pictures of a senior examiner’s private parts.

Michael Hsu, co-chair of FDIC’s special committee, said the report found Gruenberg was “not cited as a root cause” of the FDIC’s problems.

Joon Kim, a partner at Cleary Gottlieb Steen & Hamilton, said women and minorities working at FDIC were more often the targets of misconduct in a workplace that he described as “patriarchal or insular.”

McKernan said the report demonstrated biases “in favor of the male workforce.”

The White House says Gruenberg will step down once a successor is appointed and that President Joe Biden will name a replacement soon.

Biden has yet to submit a new nominee to lead FDIC, but several lawmakers said Wednesday that Biden intends to nominate Christy Goldsmith Romero, commissioner of the Commodity Futures Trading Commission, to serve as FDIC chairwoman.

White House Press Secretary Karine Jean-Pierre told reporters Wednesday that she had no update on Biden’s nominee.

“We understand how important it is to have an FDIC chair in place. So we’re going to certainly stay laser-focused on getting that done,” Jean-Pierre said.

With an unclear timeline of when FDIC would get a new permanent leader,
McKernan told lawmakers he’s “not particularly optimistic we’ll see accountability soon.”

“I think there’s a real question here, that we at the board need to consider, during this interim when we’re waiting for a new chair or we’re waiting for the current chair to resign, and have the acting chair. I think the board needs to take a more active role here and I have been pushing for that,” he said.

‘Morale is bad’

FDIC currently ranks 25 out of 26 midsize agencies on the Best Places to Work in the Federal Government scorecard tracked by the Partnership for Public Service.

“Morale is bad,” McKernan said. “We were near the top for quite some time. I think it’s fair to say that staff have seen no real accountability, so it’s hard to see much commitment to change, absent that accountability. I think it’s fair to say that there’s a lot of skepticism, even cynicism about prospects at the FDIC.”

McKernan described flagging morale within FDIC’s workforce, and that the agency faces recruitment and retention challenges.

“I think also going forward longer term, the state of affairs at the FDIC, if not fixed are going to be a real problem for retention and recruitment of new staff and that will be fatal to our ability to achieve our mission if we can’t fix that,” he said.

FDIC is dealing with these persistent workforce issues amid a growing workload. The agency reported last month that 63 banks are on the brink of insolvency.

“Distraction certainly does not help,” McKernan said.

Kim said a hotline that third-party investigators received over 500 calls from individuals, “emotionally recounting experiences of sexual harassment, discrimination, and other interpersonal misconduct that they had suffered at the FCIC.”

“Those who reported incidents to us expressed fear, sadness and anger at what they had to endure. Many had never reported their experiences to anyone before, while others had reported internally and had been left disappointed by the FDIC’s response,” Kim said. “Virtually all of them expressed hope that reporting what they had gone through to us might help change and make better the agency that they cared about deeply.”

Kim told lawmakers that FDIC’s workplace culture issues were longstanding and “have spanned for many years across different chairs.”

Abena Mainoo, a partner at the law firm Cleary Gottlieb Steen & Hamilton, said that FDIC received 92 harassment complaints between 2015 and 2023, but that those complaints only led to suspensions in two cases.

“We found that far too many employees, and for too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination and other interpersonal misconduct,” Mainoo said. “We also found that a patriarchal, hierarchic and insular culture helped create the conditions that allowed such misconduct to occur and persist.”

‘Broken’ internal reporting

Among FDIC’s plans for reform, Hsu said the agency is addressing employees’ fear of retaliation, implementing structural changes, and ensuring the board and senior management are held accountable “for doing what’s necessary to make the FDIC a safe and inclusive workplace.”

“The employees of the FDIC need and deserve a safe and inclusive workplace and they need it now,” Hsu said.

Hsu said the FDIC is in the process of replacing a “broken” internal processing for responding to reports of harassment. The new structure will bypass management hierarchies and instead redirect complaints to third-party investigators.

Hsu said FDIC is also hiring an independent “transformation monitor” to hold the agency accountable for following through on its plans to reform the agency.

An inspector general survey of FDIC employees in 2019 found that 8% of respondents said they experienced sexual harassment at the agency between January 2015 and April 2018.

However, FDIC’s Corporate Human Resources Information System (CHRIS) documented only two cases of sexual harassment and only seven cases of sexual harassment between 2008 and 2021.

Mainoo said the investigation found “no reason to believe the CHRIS database was complete.”

Since the report’s release, FDIC’s human resources office has launched a system that tracks different types of interpersonal misconduct.

“It allows the FDIC to identify sexual harassment, for example, compared to a hostile work environment, and also identifies whether misconduct falls under FDIC’s anti-harassment program, which the records before did not do,” Mainoo said.

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