May 16, 2024 - Business

FDIC's Gruenberg would likely get fired if he was a CEO

Photo illustration of a cane pulling Martin Gruenberg out of a spotlight.

Photo illustration: Shoshana Gordon/Axios. Photo: Graeme Sloan/Bloomberg via Getty Images

In the business world, FDIC chair Martin Gruenberg would likely be forced out of his leadership role.

Why it matters: So far, politics has saved the longtime bank regulator — neither the White House nor any prominent Democrats have called for his ouster in the wake of a scathing report on a culture of harassment and retaliation inside the FDIC.

  • The White House and progressive Democrats want to get their financial regulatory agenda across the finish line. That's already an uphill battle, and without Gruenberg, they likely couldn't do it.

State of play: Lawmakers excoriated Gruenberg at a hearing of the House Financial Services committee Wednesday — Republicans called for his resignation and even firing.

  • Democrats ripped into the chair, too, questioning his ability to actually change the organization he's worked at for nearly 20 years. Still, they stopped short of calling for his resignation.
  • Rep. Sean Casten (D-Ill), for one, questioned what firing Gruenberg would accomplish at the FDIC. "Let's not confuse a political scalp with changing [the] culture," he said.

The big picture: It's possible the CEO of a public company could withstand the situation that Gruenberg is facing, but "it would be extremely difficult in this day and age," says Jonathan Macey, a professor at Yale Law School.

  • Some of chair Gruenberg's defenders say that because he is not specifically accused of sexual misconduct, he wouldn't necessarily be fired in a corporate setting.
  • Macey disagrees. He says that in some instances where misconduct is isolated, it makes sense to keep leadership in place. But when there's pervasive misconduct, it's different. "A CEO is responsible for the corporate culture."
  • "I rail all the time that there's not enough accountability at companies," says Nancy Smith, an employment and civil rights lawyer. But most companies would oust a leader in a situation like Gruenberg's, she says.

A few lawmakers said regulators wouldn't tolerate the kind of behavior laid out in the FDIC investigation in any of the banks they're charged with overseeing.

  • "Do you think for one minute that if the kind of misconduct outlined in the report was uncovered at an FDIC regulated bank, that chair Gruenberg would offer any kind of grace to the management of that bank? The question answers itself," said Rep. Andy Barr (R-Ky.).

The other side: Instead of calling for Gruenberg's ouster, some of his defenders are questioning the motives of his detractors.

  • "While there are serious issues at the FDIC, the Wall Street orchestrated attempt to remove the Chair is merely a way of blocking tighter rules on large banks," Matt Stoller, director of research at the progressive American Economic Liberties Project, said in a statement.
  • Whether or not his detractors are acting in bad faith ultimately is irrelevant, says Smith. No one disputes the investigation's findings. There needs to be change at the FDIC for the sake of the people who work there, she says.
  • It's unlikely that an insider like Gruenberg could actually clean up the agency culture, as he said he would at Wednesday's hearing. Real change would require a lot of people losing their jobs. "A lot of people need to be fired," says Smith.

What to watch: Gruenberg will face another grilling before the Senate later this Thursday morning.

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