The Biden administration’s banking regulations are in jeopardy as the chairman of the Federal Deposit Insurance Corporation (FDIC) prepares to resign following reports confirming a toxic workplace culture at the agency.
FDIC Chairman Martin Gruenberg is a key figure in getting several important proposals to the finish line, including the controversial Basel III endgame regulations.
Gruenberg announced Monday that he would step down once a successor was confirmed, but he will remain in his role for the time being as President Biden searches for a replacement.
But experts said the Senate is unlikely to confirm a new FDIC chair months after the election, leaving Gruenberg and his administration’s banking regulators in a precarious position.
Ian Katz, managing director at Capital Alpha Partners, said in a statement to The Hill that he is “skeptical that this plan will work.”
“I don’t think he will stay long until a successor is confirmed,” Katz added. “I think Republicans will be furious, and I think there will be some moderates.” [Democrats] This idea may not suit you.”
Mr. Gruenberg has been under fire for months since the Wall Street Journal published an article last fall detailing a toxic workplace culture rife with sexual harassment and misconduct at the banking regulator.
A review published earlier this month by the law firm Cleary, Gottlieb, Steen & Hamilton mostly confirmed the magazine’s report and drew new attention to Mr. Gruenberg.
The FDIC chairman was roundly criticized by lawmakers on both sides of the aisle during two oversight hearings last week, but many Democrats chose not to call for Gruenberg’s resignation.
The final tip appears to come from Senate Banking Committee Chairman Sherrod Brown (D-Ohio). Mr. Brown reversed his position on Monday, ultimately calling on Mr. Biden to replace Mr. Gruenberg.
“After chairing last week’s hearing, reviewing the independent report, and receiving additional support from FDIC staff to the Banking and Housing Committee, I was left with one conclusion: That means we need to make some changes,” Brown said.
By the end of the day, Mr. Gruenberg announced his plans to resign, and the White House promised to recommend a new FDIC chair candidate “soon.”
“We are proud of his commitment to expeditiously implementing the recommendations made in recent reports and his willingness to remain at the FDIC until a replacement is chosen to continue to protect our nation’s financial stability during this transition period,” the White House said. I am grateful to both of them.” Press Secretary Sam Michel said in a statement:
Republicans quickly accused Gruenberg and Democrats of political maneuvering following the announcement.
“If President Biden and the Democratic Party are serious about supporting workers and correcting the FDIC’s toxic work culture, I will be calling on Chairman Enberg to resign immediately.” said in a statement.
“This strategy of delay clearly shows that the current administration is prioritizing its own political agenda over worker protections,” said the front-runner to be former President Trump’s running mate in the next presidential election. one Scott added.
House Financial Services Committee Chairman Patrick McHenry (R.N.C.) similarly said that Gruenberg “prioritized the Democratic Party’s politicized regulatory agenda over the integrity of the FDIC and the stability of our nation’s financial system.” “I do,” he suggested.
“There is a clear succession plan in place, and even if he were to legitimately resign today, the agency’s operations would continue uninterrupted,” McHenry said.
The succession plan would see FDIC Vice Chairman Travis Hill, a Republican, take over as head of the agency.
Brian Gardner, chief Washington policy strategist at Stifel Financial, said Hill, who opposed the Basel III proposal that would require big banks to hold more capital, could make significant changes to the proposal or restart the process. He said it was highly sexual.
“If Gruenberg resigns, it would effectively undermine what the administration and many congressional Democrats want to accomplish at the agency,” Gardner told The Hill.
The Basel III proposal represents a joint effort by the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC), along with another proposal that would require large banks to maintain a layer of long-term debt.
“Many of these actions are coordinated, particularly the Basel III endgame proposal,” Gardner added. “It’s a multi-agency proposal. And if one agency has trouble completing and finalizing its proposal, it’s going to be a huge setback for the others as well.”
If Mr. Grunberg resigns without choosing a replacement, the FDIC’s proposed changes to bank merger guidelines could also be in jeopardy.
On Monday, former FDIC Chair Sheila Bair, a Bush appointee who called on Mr. Gruenberg to resign, emphasized his decision to stay on while Mr. Biden searches for a replacement.
“If Mr. Grunberg resigns now, the board will become gridlocked, further undermining the agency and reducing morale,” Baer said in a post on social platform X on Tuesday.
“Everyone in this discussion needs to think about what’s best for the agency,” she added. “We need new, fresh leadership with the legitimacy to be nominated and confirmed for the position.”
However, with the election less than six months away, it seems unlikely that Republicans will confirm who Mr. Biden will choose to replace Mr. Gruenberg. Democrats have a narrow majority in the Senate, but Biden’s nomination could face opposition from Democrats in red states in a tough re-election battle.
“I…I don’t think they’ll be able to confirm anyone to replace him. I don’t see any political incentive for Republicans to do that in an election year,” said Steve Pavlik, policy director at Renaissance Macro Research. said.
Pavlik said Grunberg’s resignation announcement may also be an attempt by Democrats to rewrite their view on the FDIC scandal. Republicans have accused Democrats of keeping Grunberg in place to advance the administration’s regulatory agenda.
“Democrats are trying to change the narrative here by recognizing their responsibility and flipping the script to Republicans and saying, ‘You guys are not going to agree to confirm a successor. You’re the ones keeping us in office,”’ Pavlik said. he told The Hill.
Gardner stressed in his Tuesday research report that Congress has limited time left to approve a new nominee for FDIC chair between Memorial Day, Independence Day, the Republican National Convention and the August recess.
“The calendar will be further compressed in the fall because of the November election,” he added. “Congress will be out of session in October for campaigning and will face a congested schedule in late November and December. Getting the FDIC recommendation into the calendar is not really a priority.”
Gardner said that given that President Trump is likely to replace the heads of the OCC and the Consumer Financial Protection Bureau (CFPB) if elected, the only Democratic FDIC chair would likely be in a difficult position. He said that many potential Democratic candidates may be hesitant to accept the nomination.
“Given the current state of affairs in 2024 and the fact that this is a presidential election year, we believe it is possible that Mr. Gruenberg will remain in his position through the end of the year,” he wrote.
But Katz said he would be surprised if Gruenberg remained in the job until a replacement is confirmed.
“There will be significant Republican pressure on Mr. Gruenberg to resign in the near future,” Katz said in a research note Monday.
“And moderate Democrats, especially those who are not supporters of the final Basel package, may also want Mr. Gruenberg to resign now,” he added. “They’re probably thinking, ‘Why would I want to save this guy?’
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