Bank Regulator Overseeing ‘Toxic’ Culture Loses Key Supporter in Senate

The top Democrat on bank regulation, Senator Sherrod Brown of Ohio, called on President Biden Monday to choose a new leader for the Federal Deposit Insurance Corporation, saying he no longer had confidence that the agency’s current chair, Martin Gruenberg, could heal its “toxic culture.”

In a statement, Mr. Brown, the chairman of the Senate Banking Committee, said that after a committee hearing with Mr. Gruenberg on Thursday, he no longer believed that Mr. Gruenberg could put an end to a culture of sexual harassment and discrimination at the agency, which oversees U.S. banks. He called for Mr. Biden to nominate a successor and for the Senate to quickly confirm that person, who could then take over for Mr. Gruenberg.

“There must be fundamental changes at the F.D.I.C.,” Mr. Brown said. “Those changes begin with new leadership, who must fix the agency’s toxic culture and put the women and men who work there — and their mission — first.”

An F.D.I.C. spokesman declined to comment.

The agency’s problems were detailed in a report released this month, prepared by the law firm Cleary Gottlieb, that was commissioned by the F.D.I.C.’s board in response to a series of articles in The Wall Street Journal. Since then, Mr. Gruenberg has faced some calls to resign from members of both political parties who said they felt he had played too big a role in shaping the agency’s culture in recent years, including by making the agency’s staff fear communicating with him.

Until Monday, Mr. Gruenberg, who is in the middle of a five-year term as chairman, was in a relatively safe position as a key protector of the Biden administration’s efforts to strengthen bank regulations. The fate of a proposed overhaul to capital requirements for the country’s largest banks hangs in the balance, with institutions furiously fighting it.

Mr. Gruenberg leads a five-person board of directors and, as a Democrat, helps keep the agency’s rules in line with Mr. Biden’s agenda.

A White House spokesman did not immediately respond to a request for comment.

No more than three F.D.I.C. board members can belong to the same political party, according to the agency’s rules. With Mr. Gruenberg in charge, Democrats hold three of five board votes. This is likely a factor in why Mr. Brown called for Mr. Gruenberg to resign only after a successor is confirmed.

Support for the new capital rules changes generally runs along partisan lines. The two Republicans on the F.D.I.C. board, including the vice chair Travis Hill, are likely to vote against it.

On Wednesday and Thursday last week, Mr. Gruenberg made back-to-back appearances in Senate and House committee hearings, and his performances were not enough to satisfy Mr. Brown.

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

The Cleary Gottlieb report found a pattern of abuse by senior examiners and other officials at the agency, including instances in which supervisors sent their employees nude photos of themselves or took them to brothels during business trips. It also questioned whether Mr. Gruenberg, who has led the agency for 10 of the past 13 years, could remain effective in his role, given “the incidents of — and resulting reputation for — losing his temper and expressing anger with staff.”