FDIC chair's resignation threatens Biden banking agenda

The Biden administration’s banking regulations hang in the balance as the chair of the Federal Deposit Insurance Corp. (FDIC) prepares to step down in the face of reports documenting a toxic workplace culture at the agency. 

FDIC Chair Martin Gruenberg is central to getting several key proposals, including the controversial Basel III Endgame regulations, across the finish line. 

Gruenberg’s announcement Monday that he will resign once a successor is confirmed leaves him in place for now as President Biden searches for a replacement.  

However, experts said it is unlikely that the Senate will confirm a new FDIC chair just months out from the election, leaving Gruenberg — and the administration’s banking regulations — in a precarious position. 

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

“I don't think he can hang on long enough for a successor to be confirmed,” Katz added. “I think the Republicans are going to be furious, and some moderate [Democrats] might not go along with this idea.” 

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

A review by the law firm Cleary Gottlieb Steen & Hamilton, released earlier this month, largely confirmed the Journal’s reporting and brought renewed scrutiny on Gruenberg. 

The FDIC chair was grilled by lawmakers on both sides of the aisle during two oversight hearings last week, although most Democrats opted not to call on Gruenberg to step down. 

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

“After chairing last week’s hearing, reviewing the independent report, and receiving further outreach from FDIC employees to the Banking and Housing Committee, I am left with one conclusion: There must be fundamental changes at the FDIC,” Brown said. 

By the end of the day, Gruenberg had announced his plans to resign, and the White House was promising to “soon” put forward a new nominee for FDIC chair. 

“We thank him for both his commitment to swiftly implement the recommendations made in the recent report and his willingness to stay at FDIC until his successor is confirmed in order to continue to safeguard our nation’s financial stability during this time of transition,” White House deputy press secretary Sam Michel said in a statement. 

Republicans quickly accused Gruenberg and Democrats of political maneuvering following the announcement. 

“If President Biden and Democrats were really serious about supporting employees and fixing the FDIC’s toxic work culture, they’d ask Chairman Gruenberg to step down immediately,” Sen. Tim Scott (R-S.C.), ranking member of the Senate Banking Committee, said in a statement. 

“This draw-it-out strategy makes it clear that this administration is prioritizing their political agenda over protecting workers,” added Scott, a top contender to be former President Trump's running mate in the upcoming election.

House Financial Services Chair Patrick McHenry (R-N.C.) similarly suggested that Gruenberg is “putting Democrats’ politicized regulatory agenda ahead of 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 rightly stepped down today,” McHenry noted. 

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

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

“Gruenberg stepping aside really would undercut what the administration and a lot of congressional Democrats want to accomplish at the agencies,” Gardner told The Hill. 

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

“A lot of these actions are coordinated, especially the Basel III Endgame proposal,” Gardner added. “It's a multi-agency proposal. And if one agency is hamstrung from finishing the proposal, finalizing it, it really hamstrings the others as well.” 

The FDIC’s proposed changes to bank merger guidelines could also be imperiled if Gruenberg were to step down without a replacement. 

Former FDIC Chair Sheila Bair, a Bush appointee who called on Gruenberg to step down Monday, touted his decision to stay on while Biden looks for a replacement. 

“If Gruenberg leaves now, the board will be gridlocked, further impairing agency functioning and hurting morale,” Bair wrote in a post on the social platform X on Tuesday.  

“Everyone in this debate should think about what’s best for the agency,” she added. “New, fresh leadership, with the legitimacy of being nominated and confirmed for the job, is what it needs.” 

However, Republicans appear unlikely to confirm whoever Biden selects to replace Gruenberg with the election looming just under six months away. While Democrats have a narrow Senate majority, Biden's pick could face pushback from red-state Democrats in tough reelection races.

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

Gruenberg’s resignation 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, recognizing it’s a liability, and flip the script on Republicans, saying, ‘You guys won't agree to confirm a replacement, therefore you're the ones keeping him in power,’” Pavlick told The Hill.

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

“The calendar gets even more compressed in the fall due to the November elections,” he added. “Congress will be out of session to campaign in October and face a packed 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, given that Trump would likely replace the heads of the OCC and the Consumer Financial Protection Bureau (CFPB) if elected, leaving a lone Democratic FDIC chair in a tough position, Gardner said. 

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

However, Katz said he would be surprised if Gruenberg holds on to his position until a successor is confirmed. 

“We think the pressure on Gruenberg to resign soon will increase significantly from Republicans,” Katz wrote in a research note Monday.

“And moderate Democrats, especially those who aren’t fans of the Basel endgame proposal, might also call on Gruenberg to step down now," he added. "Their thinking is likely: Why do I want to save this guy?”