FDIC chairman's resignation threatens Biden's banking agenda

The Biden administration's banking rules are at stake now that the chairman of the Federal Deposit Insurance Corp. (FDIC) is preparing to resign in light of reports documenting a toxic workplace culture at the agency.

FDIC Chairman Martin Gruenberg is playing a central role in getting several major proposals across the finish line, including the controversial Basel III Endgame rules.

Gruenberg's announcement Monday that he will step down once a successor is confirmed leaves him in place for now while President Biden searches for a replacement.

However, experts said the Senate is unlikely to confirm a new FDIC chairman just months after the election, leaving Gruenberg — and the administration's banking rules — in a precarious position.

“I am skeptical that this plan will work,” Ian Katz, managing director of Capital Alpha Partners, said in a statement to The Hill.

“I don't think he can last long enough to confirm a successor,” Katz added. “I think Republicans will be outraged, and some will be moderate [Democrats] may not agree with this idea.”

Gruenberg has been under fire for months since The Wall Street Journal released a report last fall detailing the bank regulator's toxic workplace culture rife with sexual harassment and misconduct.

A review by law firm Cleary Gottlieb Steen & Hamilton, published earlier this month, largely confirmed the Journal's reporting and renewed scrutiny of Gruenberg.

The FDIC chairman came under fire from lawmakers on both sides of the aisle during two oversight hearings last week, though most Democrats opted not to call on Gruenberg to resign.

The final straw appears to have come from Senate bench chairman Sherrod Brown (D-Ohio), who changed his position on Monday and ultimately called on Biden to replace Gruenberg.

“After chairing last week's hearing, reviewing the independent report, and receiving further education from FDIC staff to the Banking and Housing Committee, I can only draw one conclusion: fundamental changes must occur at the FDIC, ” said Brown.

By the end of the day, Gruenberg had announced his plans to resign, and the White House promised to put forward a new candidate for FDIC chairmanship “soon.”

“We thank him for both his commitment to quickly implementing the recent report's recommendations and his willingness to remain at the FDIC until his successor is confirmed, to continue protecting our nation's financial stability during this time of transition ,” said a White House official. press secretary Sam Michel said in a statement.

Republicans were quick to accuse Gruenberg and Democrats of political maneuvering after the announcement.

“If President Biden and Democrats were truly serious about supporting workers and fixing the FDIC's toxic workplace culture, they would ask Chairman Gruenberg to resign immediately,” said ranking member Sen. Tim Scott (R-S.C.) of the Senate Banking Committee. , said a statement.

“This strategy makes clear that this administration is prioritizing its political agenda over worker protections,” added Scott, a leading contender to become former President Trump's running mate in the upcoming elections.

House Financial Services Chairman Patrick McHenry (R-N.C.) similarly suggested that Gruenberg is “putting the Democrats' politicized regulatory agenda above the well-being of the FDIC and the stability of our financial system.”

“There is a clear succession plan in place and the agency's operations would continue unabated if he were to rightfully resign today,” McHenry noted.

This succession plan would put Travis Hill, the Republican vice chairman of the FDIC, in charge of the agency.

Hill, who opposed the Basel III proposal that requires big banks to hold more capital, would likely try to make significant changes to the proposal or start the process over, said Brian Gardner, chief Washington policy strategist at Stifel Financial Corp .

“Stepping aside from Gruenberg would really undermine what the administration and many Democrats in Congress want to accomplish at the agencies,” Gardner told The Hill.

The Basel III proposal, along with another proposal requiring large banks to maintain low levels of long-term debt, represents joint efforts between the FDIC, the Federal Reserve, and the Office of the Comptroller of the Monet (OCC).

“Many of these actions have been coordinated, especially the Basel III Endgame proposal,” Gardner added. “It is a multi-agency proposal. And if one agency fails to complete the proposal, it hinders the others as well.”

The FDIC's proposed changes to bank merger guidelines could also be in jeopardy if Gruenberg were to resign without a replacement.

Former FDIC Chairman Sheila Bair, a Bush appointee who called on Gruenberg to resign on Monday, praised his decision to stay on as Biden searches for a replacement.

“If Gruenberg leaves now, the board will be at a standstill, further affecting the agency's functioning and damaging morale,” Bair wrote in a post on the social platform X on Tuesday.

“Everyone in this debate should think about what is best for the agency,” she added. “New, fresh leadership, with the legitimacy to be nominated and confirmed for the position, is what it needs.”

However, it seems unlikely that Republicans will confirm who Biden chooses to replace Gruenberg with the election just under six months away. Although Democrats hold a slim majority in the Senate, Biden's pick could face pushback from red-state Democrats in tough reelection races.

“I don't think…they can confirm anyone to replace him. I just don't see any political incentive for Republicans to do that in an election year,” said Steve Pavlick, head of policy at Renaissance Macro Research.

Gruenberg's announcement may also represent an effort by Democrats to reshape the narrative on the FDIC scandal, Pavlick said. Republicans have accused Democrats of keeping Gruenberg in place to advance the administration's regulatory agenda.

“Democrats are trying to change the narrative here, realizing it's a liability, and flipping the script on Republicans by saying, 'You guys won't agree to confirm a replacement, therefore you're the ones who keep him in power,'” Pavlick told The Heuvel.

There is only a limited time left for Congress to confirm a new nominee for FDIC chairman, between the breaks for Memorial Day, Fourth of July, the Republican National Convention and the August recess, Gardner pointed out Tuesday in a research note.

“The calendar will become even more compact in the fall due to the November elections,” he added. “Congress will not campaign again in October and will have a busy schedule in late November and December. Fitting an FDIC nomination into the calendar will not be a high priority.”

Many potential Democratic nominees may also be hesitant to accept the nomination, as Trump would likely replace the heads of the OCC and the Consumer Financial Protection Bureau (CFPB) if elected, leaving a lone Democratic FDIC chairman in an awkward position stand, Gardner said.

“Given where we are in 2024 and given that this is a presidential election year, we believe Mr. Gruenberg could remain in this position until the end of the year,” he wrote.

However, Katz said he would be surprised if Gruenberg were to remain in his position until a successor is confirmed.

“We believe that pressure on Gruenberg to resign soon will increase significantly from the Republican side,” Katz wrote in a research note on Monday.

“And moderate Democrats, especially those who are not fans of the Basel endgame proposal, could also call on Gruenberg to resign now,” he added. “Their thought is probably: Why do I want to save this man?”

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