House Financial Services Committee Holds Hearing To Examine FDIC’s Failed Leadership & Toxic Culture

3 months ago

On Wednesday, the House Financial Services Committee held a hearing entitled, “Oversight of the FDIC’s Failed Leadership and Toxic Workplace Culture.”

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Transcript

00:00:00Without objection, the chair is authorized to declare a recess to the committee at any

00:00:02time.

00:00:03The hearing is entitled, Oversight of the FDIC's Failed Leadership in Toxic Workplace

00:00:07Culture.

00:00:08Without objection, all members will have five legislative days within which to submit extraneous

00:00:12materials to the chair for inclusion in the record.

00:00:15I will note at the outset here, and for scheduling purposes for the committee and our panelists,

00:00:22we have a vote series that will be called at 10.30 this morning.

00:00:24That was why I was interested in getting the committee started on time, though we're a

00:00:28little late.

00:00:30We will go as long as we can.

00:00:32We'll recess for committee floor votes and return once the series is concluded.

00:00:38I urge members to return as soon as possible.

00:00:40We'll start questioning as soon as we have a sufficient number to do that.

00:00:47I'll now recognize myself for four minutes for an opening statement.

00:00:51At our May hearing to conduct oversight of the prudential regulators, members of both

00:00:54sides of the aisle expressed interest in holding a separate hearing on misconduct at

00:00:59FDIC and the Cleary Gottlieb Report.

00:01:03To my colleagues, I heard you.

00:01:05Today's hearing is focused exclusively on the FDIC's toxic workplace culture and Chair

00:01:10Gruenberg's abusive behavior.

00:01:12To our witnesses, we thank you for being here today.

00:01:17Your commitment to transparency has not gone unnoticed.

00:01:21Just days after our last hearing, Chair Gruenberg announced his intent to resign at some undetermined

00:01:27future date.

00:01:30His resignation should have been welcome news to the FDIC employees who have been subjected

00:01:37to an appalling culture of misconduct and abuse, but it was all a farce.

00:01:43Resigning after the confirmation of a new chair is just more of the status quo.

00:01:48Chair Gruenberg knows this, which is why he told employees at the FDIC to continue

00:01:55as if he would be there until the end of the year.

00:01:59That is outrageous.

00:02:02This though is part and parcel of Mr. Gruenberg's failure to accept responsibilities for his

00:02:07own actions.

00:02:09His approach to a long overdue cultural overhaul of the FDIC seems to be deny, deflect, and

00:02:17delay.

00:02:18Case in point, three weeks after the White House pledged to move quickly to replace him,

00:02:21we have yet to see a successor even nominated.

00:02:25Deep institutional changes at the FDIC are needed now, not later, which is why I called

00:02:30on President Biden to fire Chair Gruenberg for cause.

00:02:36There is a clear succession plan in place.

00:02:39The agency's operations would continue unabated if he rightfully stepped down today.

00:02:47So what's the delay?

00:02:48The Inspector General, Wall Street Journal, and Cleary Gottlieb all outlined abhorrent

00:02:53misconduct at every level of the agency in painstaking detail.

00:02:58But based on Chair Gruenberg's claims, we're supposed to believe he somehow missed this

00:03:04appalling behavior while leading the agency for 10 of the last 13 years.

00:03:12It's clear any cultural change will happen in spite of his presence, not because of it.

00:03:19The consequences of Chair Gruenberg's failed leadership go further than the four walls

00:03:23of the FDIC, though.

00:03:25The events that have unfolded over the last 15 months in our financial system involved

00:03:30him directly or the FDIC under his watch, which include three major bank failures last

00:03:36March, including Signature Bank, which was directly under his supervision.

00:03:40In April, Chair Gruenberg's chief risk officer reviewed the FDIC's actions leading up to

00:03:44Signature Bank's failure and concluded staffing, whether it be shortages or communication issues,

00:03:52was a major issue.

00:03:54In November, revelations came to light about the FDIC's toxic culture and Chair Gruenberg's

00:03:59own abusive behavior towards staff, a task with bringing him, quote, bad news, end quote.

00:04:05It is fair to conclude that Chair Gruenberg's behavior directly impacted the FDIC's response

00:04:12to last year's banking turmoil.

00:04:14He moved slowly, couldn't make decisions, and undoubtedly lashed out at his own employees

00:04:20for presenting him information.

00:04:22So I ask the White House and my Democratic colleagues, does your own agenda really outweigh

00:04:27the need for a competent leader at the helm of the FDIC?

00:04:33With the well-being of the agency, its 6,000 employees, our financial system is well, it's

00:04:41time for Democrats to join Republicans in calling for an immediate change in leadership

00:04:46at the FDIC.

00:04:47With that, I yield back.

00:04:48The Chair now recognizes the ranking member of the full committee, the gentleman from

00:04:52California, for four minutes for the purposes of an opening statement.

00:04:55Good morning.

00:04:57Thank you to our witnesses for being here today, including Acting Comptroller Sue, who

00:05:03testified just a few weeks ago.

00:05:05As Committee Democrats have made it very, very clear, all FDIC employees deserve a safe

00:05:12work environment.

00:05:14Unfortunately, as the Clery report details, this has been the case under the leadership

00:05:21of both Republican and Democratic Chairs.

00:05:24In fact, according to the report, the FDIC has had a troubling workplace culture since

00:05:311980.

00:05:33I'm pleased that the FDIC has begun implementing the reforms necessary, and I'm pleased that

00:05:41the White House is reportedly nominating a proven leader, CFTC Commissioner Christy Goldsmith-Romero,

00:05:50to lead this effort as FDIC Chair.

00:05:54However, I am concerned that the report we are discussing may not tell the full story.

00:06:00For example, while the report focuses on the current Chair, I want to know why the report

00:06:06doesn't examine how and why former FDIC Chair Jelena McWilliams and her senior staff, including

00:06:14the current FDIC Vice Chair Travis Hill, did not do more to ensure FDIC workers had

00:06:23a safe workplace during their tenure, both before and after the Inspector General identified

00:06:30a number of concerns relating to sexual harassment way back in 2020.

00:06:36Additionally, the Chair does not include critical data needed to understand the location and

00:06:43rate of misconduct over time and which types of misconduct are currently the most prevalent.

00:06:51My staff asked CLERI to provide this information, but they did not.

00:06:56This information could significantly impact what types of reforms the FDIC leadership

00:07:03should prioritize and where they should be implemented.

00:07:06Now, while this committee should be focused on the employees and exploring ways to strengthen

00:07:13worker protections, Republicans are attacking the Democratic Chair, who has already announced

00:07:20he will step down, but you won't hear them call for Republican Vice Chair Travis Hill

00:07:28to step down, despite him being a senior official under former Chair McWilliams when allegations

00:07:36of misconduct persisted.

00:07:39I also wonder whether my colleagues will call for anyone who has been found liable for sexual

00:07:46abuse to stand down from holding other positions of power in government, like, for example,

00:07:53the former President and top Republican.

00:07:56He is not only an adjudicated sexual abuser, but also the first and only former President

00:08:02to be criminally convicted of not one, not two, but 34 felonies relating to violating

00:08:10election laws.

00:08:11Twice impeached, he also faces three more criminal indictments for his efforts to overturn

00:08:18the election and still highly sensitive and classified national security documents and

00:08:25stashed them at his Mar-a-Lago resort.

00:08:29Thankfully, President Biden is quickly taking steps to protect workers at the FDIC by reportedly

00:08:38nominating CFTC Commissioner Christy Goldsmith-Romero to serve as FDIC Chair.

00:08:46Commissioner Goldsmith-Romero has a long track record of working to protect our nation's

00:08:51investors, consumers, and taxpayers.

00:08:55When she served as Special Inspector General for the Troubled Asset Relief Program, she

00:09:02successfully held accountable bank executives who engaged in financial crimes and fraud.

00:09:10She has been unanimously confirmed by the Senate twice.

00:09:14If Republicans are committed to changing the work culture at the FDIC, I expect that they

00:09:21will join with Democrats to support her swift Senate confirmation.

00:09:27I yield back.

00:09:29We'll now recognize the Chair of the Oversight Subcommittee, Mr. Huizenga, for one minute.

00:09:33Thank you, Mr. Chairman.

00:09:35We'll continue to hear Democrat colleagues today attempt to deflect blame, and we will

00:09:40continue to hear a litany of reasons why Chairman Gruenberg is the right man at the right time

00:09:45with the right ideas to reform the FDIC.

00:09:48However, one simple fact remains.

00:09:51Chairman Gruenberg is a failed leader who has put politics and a radical progressive

00:09:55agenda over doing what is right.

00:09:57He has put himself and his own ego before the FDIC employees and the well-being of the

00:10:02agency that he reportedly loves.

00:10:05Mr. Chairman, the independent report, which findings have been accepted by everyone here

00:10:08today, was clear on one thing.

00:10:11Culture starts at the top.

00:10:14For nearly two decades, Mr. Gruenberg has failed to recognize how his own misconduct

00:10:19negatively affects his own employees.

00:10:23Mr. Chairman, it's time for new leadership.

00:10:26It's time to let the agency heal.

00:10:29The safety and soundness of our banking system is at risk under his leadership, and Chairman

00:10:33Gruenberg should resign immediately or be removed by the President.

00:10:38I yield back.

00:10:39The gentleman yields back.

00:10:43The Ranking Member of the Subcommittee on Oversight and Investigations, Mr. Green, is

00:10:46recognized for one minute.

00:10:48Thank you, Mr. Chairman.

00:10:49I thank the Ranking Member as well, and I associate myself with the comments of the

00:10:54Ranking Member.

00:10:56Mr. Chairman, Chair Gruenberg has stated that he will step down.

00:11:02He will step down from his position once a successor is confirmed.

00:11:08I'd like to thank President Biden for putting forth a capable, competent, and qualified

00:11:14nominee.

00:11:15And I encourage the Senate to confirm this nominee as quickly as possible.

00:11:21Confirm this nominee who will rectify the toxic causality that resulted in appropriate

00:11:28conduct at the FBIC.

00:11:31I do concur with the Ranking Member.

00:11:34The employees, the persons who work there in all facets of work, deserve a safe and

00:11:40secure work environment.

00:11:42I trust that the Chair and his successor, the new Chair who will succeed Gruenberg,

00:11:51will work prudently to strengthen banking regulations, capital requirements, as well

00:11:56as rein in incentive-based executive compensation that encourages excess risk-taking, and, again,

00:12:03produce a safe work environment.

00:12:06I thank you, and I yield back.

00:12:08The gentleman yields back.

00:12:10I'll note for the record that while my Democrat colleagues may be front-running the White

00:12:14House, we've yet to see the full nomination presented, the press reports indicate it,

00:12:19and now our Democrat colleagues are saying it.

00:12:21So we'll now recognize the testimony of the distinguished panel today.

00:12:27Mr. Michael Hsu, co-chair of the Special Committee of the Federal Deposit Insurance Corporation.

00:12:34Mr. Jun Kim, partner of the law firm Cleary Gottlieb Stein & Hamilton LLP.

00:12:41Ms. Abina Manu, also a partner with a law firm of Cleary Gottlieb Stein & Hamilton LLP.

00:12:51And the Honorable Jonathan McKernan, co-chair of the Special Committee of the Federal Deposit

00:12:57Insurance Corporation.

00:12:59I would note Chair Gruenberg's absence.

00:13:02Originally, the committee noticed and announced he would participate in today's hearing.

00:13:07Unfortunately, he did have a personal conflict, and we look forward to his appearance before

00:13:11the committee in the future.

00:13:13I'd like to thank each of our witnesses for your being here.

00:13:16You'll each be given five minutes to give an oral presentation of your testimony.

00:13:20Without objection, your written testimony will be made a part of the record.

00:13:23Mr. Hsu, we'll begin with you.

00:13:26Thank you, Chairman McHenry, Working Member Waters, and members of the committee.

00:13:30I'm testifying today in my capacity as a director on the board of the FDIC and as co-chair

00:13:36of the Special Review Committee, which was established to oversee the independent, third-party

00:13:41review of the agency's workplace and culture.

00:13:45In these roles, my objective has been to protect the people of the FDIC.

00:13:49That has been my top priority in North Star throughout the entire process.

00:13:55The employees of the FDIC need and deserve a safe and inclusive workplace, and they need

00:14:00it now.

00:14:01My joint written statement with Director and Special Review Committee Co-Chair Jonathan

00:14:05McKiernan describes the processes by which the independent, third-party reviewer was

00:14:10selected and how their review and report were overseen.

00:14:15At each and every stage of the process, we sought to ensure that the review and report

00:14:19were independent, credible, and fair.

00:14:23I believe we achieved that and strongly support the report's findings and recommendations.

00:14:28Most importantly, the report provides a clear roadmap to address and remedy the pervasive

00:14:33problems at the FDIC.

00:14:35The agency must implement its recommendations immediately.

00:14:39I want to reemphasize today the urgent need for actions, not words.

00:14:44I am especially focused on actions in three areas.

00:14:47First, addressing the fear of retaliation.

00:14:51Second, implementing the right action plan for cultural and structural transformation.

00:14:57And third, ensuring that the board and senior management can and will be held accountable

00:15:03for doing what's necessary to make the FDIC a safe and inclusive workplace.

00:15:08Currently, the agency is taking action on all three fronts, following through on recommendations

00:15:13in the report.

00:15:14More specifically, the FDIC is in the process of, first, replacing the broken internal process

00:15:21for fielding and responding to reports of harassment with a new structure that will

00:15:26bypass management hierarchies and utilize third-party investigators, hold wrongdoers

00:15:31accountable, and report directly to the board in order to credibly mitigate the risk of

00:15:36retaliation.

00:15:37Second, hiring a third-party expert to bring an independent outside perspective on what's

00:15:44needed to ensure cultural and structural transformation, including augmenting the

00:15:49agency's action plan as necessary.

00:15:51And third, hiring an independent transformation monitor to hold the agency accountable for

00:15:57following through on its commitments and taking the necessary actions in a timely manner.

00:16:03Protecting the people of the FDIC and earning back their trust must be our highest priority.

00:16:08I'm fully committed to that.

00:16:11The three actions I highlighted, restructuring how the agency does intake, investigations

00:16:15and accountability, hiring a third-party expert, hiring an independent transformation monitor,

00:16:21are foundational to many of the recommendations in the report.

00:16:24Taking these steps cannot wait, and they must be done right.

00:16:28This is my focus as a director.

00:16:30Thank you.

00:16:31I'm happy to answer any questions.

00:16:32Well, now I recognize Mr. Joon Kim, partner at the law firm of Cleary Gottlieb.

00:16:39Thank you.

00:16:40Chairman McHenry, Ranking Member Waters, members of the committee.

00:16:45My name is Joon Kim, and I'm a partner at the law firm of Cleary Gottlieb, Dean of Hamilton.

00:16:51Along with Jennifer Kennedy-Park and Abhinav Menon, who is here with me today, the three

00:16:56of us led the recent review we conducted on behalf of the Special Review Committee of

00:17:02the FDIC's Board of Directors.

00:17:05The Special Review Committee appointed our firm to conduct an independent review of allegations

00:17:11of sexual harassment and interpersonal misconduct at the FDIC, including hostile, abusive, unprofessional,

00:17:21or inappropriate conduct, as well as management's response to these allegations, and the FDIC's

00:17:29workplace culture, including any practices that might discourage or deter the reporting

00:17:35of this type of misconduct.

00:17:37In conducting this review, we recognized its importance to the FDIC, an institution that

00:17:45performs a critically important public function of maintaining stability and public confidence

00:17:51in our nation's financial system.

00:17:54We appreciated the grave responsibility of conducting this type of a review, both to

00:18:00the FDIC and its employees, as well as the public that it serves.

00:18:06We understood that independence, credibility, and fairness were of paramount importance.

00:18:14That is how we approached the conduct of our review and the drafting of our report.

00:18:20To gather the facts necessary for the review, we set up a hotline through which individuals

00:18:26could make reports.

00:18:29We obtained and reviewed thousands of documents from the FDIC and conducted additional interviews

00:18:36of current and former FDIC employees from across multiple offices, divisions, and seniority.

00:18:44The reports made to our hotline were particularly revealing, both in volume and in substance.

00:18:54Over 500 individuals courageously reported to our hotline, often painfully and emotionally

00:19:02recounting experiences of sexual harassment, discrimination, and other interpersonal misconduct

00:19:09that they had suffered at the FDIC.

00:19:13Although we cannot describe all of the incidents reported to us, we do feel compelled to convey

00:19:19the powerful emotions that we heard.

00:19:23Those who reported incidents to us expressed fear, sadness, and anger at what they had

00:19:30had to endure.

00:19:32Many had never reported their experiences to anyone before, while others had reported

00:19:38internally, had been left disappointed by the FDIC's response.

00:19:44Virtually all of them expressed hope that reporting what they had gone through to us

00:19:50might help change and make better the agency that they cared about deeply.

00:19:56In conducting our review, we were guided by their example and by the goal of doing right

00:20:03by them.

00:20:05We hope that our review and our report did justice to their experiences and honored the

00:20:10public service of the thousands of FDIC employees.

00:20:14My colleague, Ms. Maynew, will discuss in her remarks the factual findings, analyses,

00:20:19and recommendations set forth in our report.

00:20:23Thank you for the opportunity to present on this important issue to this committee, and

00:20:27we welcome questions.

00:20:28I will now recognize for five minutes Ms. Maynew.

00:20:33Good morning, Chairman McHenry, Ranking Member Waters, and members of the committee.

00:20:39We set forth in our report the factual findings from our review, an analysis of the root causes

00:20:47of the issues we identified, and recommendations we believe would help address the issues that

00:20:52we identified.

00:20:53Our report is being submitted to the committee with our written testimony.

00:20:58As we set forth in our report, we found that for far too many employees and for far too

00:21:04long the FDIC has failed to provide a workplace safe from sexual harassment, discrimination,

00:21:11and other interpersonal misconduct.

00:21:14We also found that a patriarchal, hierarchic, and insular culture helped create the conditions

00:21:20that allowed for such misconduct to occur and persist.

00:21:25In addition, we found that a deep-seated fear of retaliation as well as a lack of clarity

00:21:31and credibility around internal reporting channels led to an underreporting of workplace

00:21:37misconduct over the years.

00:21:40Other root causes we identified included a lack of accountability, insufficient prioritization

00:21:46of workplace culture, risk aversion, abuse of certain power dynamics, and insufficient

00:21:53record keeping.

00:21:55To address these issues, many of which we found were longstanding and deeply ingrained,

00:22:01we made a number of recommendations in our report.

00:22:04In developing the recommendations, we took into account the view expressed by many who

00:22:09reported to us that truly lasting and meaningful change will not be a matter merely of revisions

00:22:16to policies and increased trainings, although those are necessary and important, but must

00:22:22include real cultural and structural change.

00:22:27That is why, among other changes, we recommended the appointment of a culture and structure

00:22:33transformation monitor, as well as an independent third-party expert, such that the FDIC will

00:22:39have expert guidance in implementing the recommendations, as well as a monitor that will monitor and

00:22:44audit such implementation.

00:22:47First among our recommendations is to protect the victims, including protecting the physical

00:22:52and psychological safety of those who have experienced sexual harassment, discrimination,

00:22:58bullying, or other interpersonal misconduct at the FDIC.

00:23:02That was our first recommendation because they were our foremost concern.

00:23:06They are public servants who, like so many within the FDIC, care deeply about and take

00:23:13great pride in the mission and work of the FDIC.

00:23:17They demand and deserve a workplace with a positive culture that is safe from sexual

00:23:21harassment, discrimination, and other interpersonal misconduct.

00:23:25We hope our review and our report will help achieve that for them and all other FDIC employees.

00:23:31Thank you for the opportunity to present to the committee on this important matter, and

00:23:35we look forward to answering any questions you may have for us.

00:23:38We'll now recognize Director Kernan for five minutes.

00:23:43Chairman McHenry, Ranking Member Waters, other members of the committee, I'm here in my capacity

00:23:50as a co-chair of the Special Review Committee that oversaw Cleary Gottlieb's review of the

00:23:56FDIC's workplace.

00:23:58I might first address myself to the FDIC employees.

00:24:04Cleary's report establishes that you've been hurt.

00:24:08The report makes clear that what happened to you was real, that what happened was wrong,

00:24:14totally unacceptable.

00:24:15I hope the report puts us on a path to change, and I hope accountability, real accountability,

00:24:24is not too far off.

00:24:26I'd like to also convey my respect and appreciation to Director Hsu for the exceedingly constructive

00:24:34and nonpartisan way in which she approached this review.

00:24:37I think we set an example for how the FDIC board can and should work.

00:24:43In my year and a half at the FDIC, I've developed a strong attachment to the FDIC's staff and

00:24:47our shared mission.

00:24:49Overseeing the review, I saw a different side of the FDIC.

00:24:53That was a jarring experience.

00:24:56I think that's similar to the experience many have reading the report.

00:25:01Cleary's report is a painful read.

00:25:03The report documents sexual harassment and misconduct on a scale and of nature that shock

00:25:08the conscience.

00:25:10The report describes a good old boys club that is, quote, patriarchal, quote, misogynistic.

00:25:15The report makes clear there has been a widespread, incredible fear of retaliation that deters

00:25:21victims from reporting wrongdoing.

00:25:23The report also makes clear that there has been a failure to hold wrongdoers accountable

00:25:28when actually reported.

00:25:29The report describes how these dynamics compound upon each other, driving a cycle of deepening

00:25:36fear and distrust among employees, especially women, and other underrepresented groups.

00:25:41It is also the case that almost all the FDIC employees are good people, solid public servants,

00:25:48deeply committed to a mission that is central to the success of our country.

00:25:52Reconciling that with the Cleary report comes down to a question of leadership.

00:25:57An organization can prioritize protecting employees.

00:26:00It can strive to root out wrongdoers and make an example of them.

00:26:05Or an organization can prioritize protecting itself.

00:26:08It can strive to brush wrongdoers under the rug, move them around, even promote them,

00:26:13all with an aim to avoid litigation, the bad press, the time and expense of disciplining

00:26:20bad actors.

00:26:21The FDIC too often chooses the second path.

00:26:26That choice isn't driven by policies, procedures, or training.

00:26:30That choice is driven by values, and our values are set by our leaders.

00:26:35Thank you, and I look forward to your questions.

00:26:38Thank you.

00:26:39I now recognize myself for five minutes.

00:26:42Director McKernan, the chairman of the board of the FDIC is responsible for overseeing

00:26:47the staff of the agency.

00:26:48Is that correct?

00:26:49Correct.

00:26:50Do you think it's important that the chairman be able to have an open dialogue with FDIC

00:26:56employees about what they do?

00:26:57Absolutely, Chairman.

00:26:59Is that what all board members try to do?

00:27:01I think so.

00:27:03Would you agree that the findings of the Clery report demonstrate that FDIC employees do

00:27:07not feel comfortable interacting with Chairman Gruenberg?

00:27:10The report certainly establishes that his reputation and conduct has chilled communication.

00:27:16How so?

00:27:17I think there is a general reluctance among some to deliver bad news.

00:27:20At least that's the findings of the report.

00:27:23And how does delivering bad news, what does that mean for the agency?

00:27:28Well, I think it can certainly impede our ability to achieve our mission.

00:27:32If we're going to achieve our mission, leadership needs to make informed decisions.

00:27:37To make informed decisions, you have to have all the facts, both good and bad.

00:27:40Great.

00:27:41Does that affect safety and soundness?

00:27:42Absolutely.

00:27:43Safety and soundness is central to our mission.

00:27:46So rewinding to March of last year, when you had bad news about three banks going down

00:27:54in the lead up to that, and you have a chair that has had such a serious chilling effect

00:27:58on his staff, they don't even want to present him bad information.

00:28:01Did they fear for their career or just the nasty abuse that he will give them for presenting

00:28:07information?

00:28:08I'm not sure if I understand the question, Chairman.

00:28:14So did that have any effect in March?

00:28:17It certainly could have.

00:28:18I don't know of any specific incidents.

00:28:22So the safety and soundness question here really falls on the chair of the FDIC board.

00:28:29Ms. Manu, I think you might be the appropriate person to ask this.

00:28:32Can you give us some details you learned during the course of your investigation about the

00:28:36chilling effect Chairman Gruenberg's behavior has on FDIC employees delivering bad news?

00:28:46Chairman McHenry, we described in our report, around page 90 of our report, incidents involving

00:28:52Chairman Gruenberg.

00:28:53We had looked into allegations of interpersonal misconduct concerning Chairman Gruenberg,

00:28:59as those were part of the publicly reported allegations that led to the need for our independent

00:29:04review.

00:29:05And specifically, we described incidents as recently as March 2023, in which an individual

00:29:13reported an outburst involving Chairman Gruenberg.

00:29:18And so what did you take from this?

00:29:23Was that a widespread thing, or was this a one-off occasion?

00:29:28We obtained reports of several incidents over time, including when Mr. Gruenberg was vice

00:29:37chairman of the FDIC, continuing until at least 2023, during his current tenure as chairman,

00:29:46where employees reported experiences with Chair Gruenberg, including the chair losing

00:29:52his temper.

00:29:53And what we took from that, and what we heard from employees who reported to us, was that

00:29:57this could have a chilling impact on communications with Chair Gruenberg, although I will also

00:30:03note that we did not identify specific incidents that affected the FDIC's ability to meet its

00:30:10mission.

00:30:11Okay.

00:30:12And, okay, so get into that question.

00:30:16So the chilling effect, you have stories, does that establish the reputation he had

00:30:21among employees of the FDIC?

00:30:25Yes, in the sense that the incidents contribute to the reputation that Chair Gruenberg has

00:30:32for losing his temper.

00:30:34Okay.

00:30:35And so when I ask this question about being presented tough information, bad news, there

00:30:42was nothing but bad news in the lead up to the bank failures in March of last year.

00:30:47And the specifics of that, this reputation he had for screaming, yelling, berating, and

00:30:56the report describes one incident where it's a period of something like 30 minutes that

00:31:00he was yelling at one employee.

00:31:05And that that would have an impact on their ability to actually tell him the bad news

00:31:11that was occurring in the financial system, which then could lead to a question of safety

00:31:16and soundness decision making for the agencies.

00:31:19Clearly from the outside, we saw the inability for them to make a decision, the FDIC to make

00:31:23a decision.

00:31:25Now this reputation he has looks clearly connected with that inability.

00:31:32Director McCurran, knowing what we know now, do you think Chairman Gruenberg should immediately

00:31:36step aside?

00:31:37Chairman, my view is the FDIC urgently needs a fresh start, and the sooner the better.

00:31:45And I'll yield back and recognize the Ranking Member, Ms. Waters, for five minutes.

00:31:53Mr. Kim, the Clery report addresses some serious issues that confront the FDIC, yet the report

00:32:02does not provide any key information that is important to understanding the workplace

00:32:08culture at the FDIC and how to best correct the problems the report identified.

00:32:15For example, the report does not indicate how many of the 510 allegations are unique

00:32:24or even when these events occurred, other than that they occurred sometime between 1980s

00:32:33and this year.

00:32:34In fact, when discussing the allegations received through the hotline, the report states that,

00:32:41quote, because various individuals reported different types of misconduct that were sometimes

00:32:48overlapping or difficult to characterize, the numbers are estimates, end quote.

00:32:56Nor does the report indicate how many of the allegations were firsthand or secondhand.

00:33:03Given this lack of specificity, it is difficult to understand what types of misconduct may

00:33:09be increasing or declining over time and what types of misconduct are most prevalent

00:33:17today.

00:33:20Can you respond to that?

00:33:21Yes, thank you.

00:33:24Our report reflects that 510 individuals reported into our hotline, and we provide at page 115

00:33:32of our report a breakdown of the different categories of reports that came in by subject

00:33:40matter.

00:33:41Many of those reports came in anonymously or confidentially where the person reporting

00:33:46specifically requested that their information be kept confidential.

00:33:50How many of those reports were anonymous?

00:33:52Pardon me?

00:33:53How many came in anonymously?

00:33:58I can take that.

00:34:01We received 200 reports through the website that allowed for anonymous reporting.

00:34:07That said, even some of those reports contained contact information for the individuals.

00:34:12So 200 would be the high estimate.

00:34:16We did include in the appendix to the report, it's approximately 50 pages, of 46 representative

00:34:24examples of reports that came in to our hotline.

00:34:29That provides quite a bit of detail, both dates.

00:34:32Okay, let me be clear.

00:34:34What's the total number of reports?

00:34:38How many reports?

00:34:39What was the number of reports?

00:34:41510 through the hotline.

00:34:44And how many of those were anonymous?

00:34:47Approximately 200.

00:34:49About 200 of those?

00:34:50Okay.

00:34:51All right.

00:34:53And just a complete thought.

00:34:55We did provide in the report representative examples of the types of allegations we received

00:35:01with detail, dates, and to the extent we did not include specificity, that was for the

00:35:09reason of protecting the confidentiality.

00:35:10So how many do you consider you were able to validate?

00:35:16The ways in which the ones that are identified in the appendix are corroborated or validated

00:35:22is set forth in the description in the appendix.

00:35:26It includes some reports that were consistent with other reports that others had made.

00:35:33Many of them, we do note in the report, many of the 510 are mere allegations.

00:35:39They are allegations that came into the report.

00:35:42We note that limitation in our report.

00:35:46But we also find in the report that the sheer volume and the nature of 510 reports coming

00:35:54in within a relatively short time of a hotline being opened with this type of, these types

00:36:00of allegations is in itself a finding.

00:36:01So how many of these most often occurred at the headquarters, the regional offices or

00:36:06the field offices?

00:36:07Is that information identified in the report?

00:36:11I didn't remember seeing how many were actually headquartered field office or regional offices.

00:36:18What we said in the report on page 115, which is the page that Mr. Kim had pointed to, is

00:36:24that many allegations came from regional or field offices.

00:36:28We received reports from all six regional offices.

00:36:31We received reports from over 30 of the field offices.

00:36:36And we also received reports from the FDIC's headquarters.

00:36:39One limitation in the information that was available to us goes to the recordkeeping

00:36:46challenges that we had identified through our review.

00:36:50And so one of our recommendations is that the FDIC ensure more systematic recordkeeping.

00:36:55We'll now recognize the Vice Chair, Mr. Hill of Arkansas for five minutes.

00:37:01I thank the Chairman, thank the panel for being with us today to continue our investigation

00:37:07of the poisonous culture at the FDIC.

00:37:12Ms. Manu, the Gottlieb report outlines that employees don't have trust in the reporting

00:37:20process, even though the FDIC has over five offices for employees to take their reports.

00:37:30This leads to employees feeling like the process is broken, confusing, ineffective.

00:37:34And to some degree, there's no real incentive to report when people are being browbeat and

00:37:40that word passes down through the culture.

00:37:46Can you describe some of the difficulties with that reporting channel to follow up on

00:37:50the line of questioning in your review?

00:37:53Yes, Congressman.

00:37:56We described in our report what we found in our review regarding concerns about the reporting

00:38:03processes and investigation processes.

00:38:06One question that FDIC employees have when they experience interpersonal misconduct is

00:38:13whether that conduct even violates any of the FDIC's policies.

00:38:17And this is in part due to some confusion about the policies and insufficient training

00:38:23on the policies.

00:38:24Let me stop you there.

00:38:25Because, you know, the FDIC and the Comptroller of the Currency and the bank regulators impose

00:38:28a strict standard as a part of their examination of HR practices at the institutions they regulate

00:38:35since the 1990s.

00:38:37What's not clear about sexual harassment in the FDIC policy that makes it so challenging

00:38:44to figure out?

00:38:47One question that comes up is whether conduct that does not necessarily violate the law,

00:38:53but otherwise would count as harassment within the FDIC's policies, does violate any policies.

00:39:00So there's a misperception that in order for any conduct to violate the policies, it needs

00:39:06to rise to the level of unlawful conduct.

00:39:11Is this a place where you'd want to work?

00:39:16Based on your spending weeks on this project, would you want to work in this environment?

00:39:21I think that's a difficult question to answer in that, as we've all said in our statements,

00:39:28it's very clear, and we heard from the FDIC employees who reported to us how proud they

00:39:32are to work at the FDIC.

00:39:34Excellent.

00:39:35It's an amazing mission since 1933, I agree.

00:39:38An important mission.

00:39:41But I don't believe that the current director should be in charge of cleaning up this situation.

00:39:49And I'm glad, according to the ranking member that he's going to appoint, President Biden's

00:39:53going to appoint a new leader.

00:39:55But in the interim, for taking how long the confirmation process will take, it's my judgment

00:40:01that we should have the transition today, and that the current chairman should be out

00:40:06of his office in order to move this atmosphere forward.

00:40:12Mr. McKernan, let me turn and talk about the implications of this.

00:40:18We have a softening economy.

00:40:20We have a rising set of challenges in commercial real estate lending.

00:40:26We have the sharpest increase in interest rates since 1980, which has created some real

00:40:32pressure in our depository institutions.

00:40:35And I'm concerned that we don't have the right leadership to get the basic job done at the

00:40:40FDIC.

00:40:43What is your assessment of that?

00:40:46This committee heard testimony during Silicon Valley.

00:40:48It was not impressive what we heard from the FDIC, and in fact, you sent us a memo pointing

00:40:53out the significant managerial weaknesses.

00:40:56Congressman, what I would say to that is, the state of affairs of the FDIC is challenging.

00:41:04Morale is bad.

00:41:05We just fell, I think, second to last in our group in our federal employment surveys.

00:41:11We were near the top for quite some time.

00:41:13I think it's fair to say that a lot of staff have lost confidence in leadership and even

00:41:18the board.

00:41:20I think it's fair to say that staff have seen no real accountability, so it's hard to see

00:41:25much commitment to change absent that accountability.

00:41:29I think it's fair to say that there's a lot of skepticism, even cynicism, about prospects

00:41:35at the FDIC.

00:41:36But I think it's also important to really emphasize that almost all the FDIC employees

00:41:40are good people.

00:41:41As I said at the beginning, they're solid public service, deeply committed to the mission,

00:41:45despite everything that we have going on, and they're going to keep pushing to do the

00:41:49mission.

00:41:50I think it's the job of the leadership to make sure that they can do their job, frankly.

00:41:54I agree.

00:41:55Let me reclaim my time in closing and simply say, you're right, we've got to have the best

00:42:00morale, the best esprit de corps, the best talent in the FDIC to handle their jobs, but

00:42:05I don't believe that's being done.

00:42:07I believe change needs to happen immediately.

00:42:08Yield back.

00:42:10And this will be the final questioning before we go to floor votes, and we'll recess after

00:42:14Ms. Velazquez.

00:42:15Ms. Velazquez?

00:42:16Thank you.

00:42:17New York is recognized for five minutes.

00:42:18Thank you, Mr. Chairman.

00:42:20Mr. Kim, Ms. Manu, can you tell us how far back these issues date and why employees didn't

00:42:28feel comfortable reporting them earlier?

00:42:35As we explain in our report, these issues are longstanding.

00:42:40As Mr. Kim noted earlier, we included in our report about 50 representative examples of

00:42:47the types of allegations that we learned, and we provided detailed descriptions.

00:42:54And even among those representative examples, you have some allegations going back as far

00:43:00back as the late 1980s and going on.

00:43:05Okay.

00:43:06Thanks.

00:43:07Do these reports become greater over time or less towards today?

00:43:16It's difficult to speak to any patterns in terms of interpersonal misconduct identified

00:43:22at the FDIC.

00:43:23As we laid out in our report, the human resources group that receives and currently investigates

00:43:32allegations of interpersonal misconduct did not have a systematic way of keeping records

00:43:38of those types of allegations until about last year.

00:43:41Thank you.

00:43:42And so, Acting Comptroller Zun, while these incidents certainly did occur on Chair Grunsberg's

00:43:49watch, they also occurred under the chairmanship of Jelena McWilliams.

00:43:55Is that correct?

00:43:56That's my understanding, yes.

00:43:58Mr. Kim and Ms. Manu, your report states that over 500 people who reported allegations of

00:44:05misconduct are disproportionately women and people from underrepresented groups.

00:44:11Can you both speak to the type of incidents FDIC employees from this group face, and how

00:44:20the good old boys' culture enabled these events to occur without repercussion?

00:44:26I can start.

00:44:28We do make the finding that those who reported were predominantly women and from underrepresented

00:44:35groups.

00:44:37We noted that when we also noted that we also spoke to many people who had positive experiences

00:44:44at the FDIC.

00:44:45And in fact, some of the people who did report incidents generally had positive experiences

00:44:50themselves.

00:44:51It was important for us to note that predominantly those reporting these issues were those who

00:44:59appeared to be women or underrepresented minorities.

00:45:07So can you talk about the good old boy network?

00:45:13Yes.

00:45:17We received reports about favoritism.

00:45:20For example, one of the examples that we included in the appendix with the representative

00:45:26examples talked about, and it was reported by two individuals where they observed a manager

00:45:38acting inappropriately toward an employee in the presence of an executive.

00:45:42And in that situation, the executive asked the employee who had been yelled at and had

00:45:47been the subject of the abuse to apologize and did not say anything to the manager.

00:45:53And one of the people who reported to us observed that this was based on the personal relationship

00:45:58that the executive had with that manager and to that individual was an example of the good

00:46:03old boys' network.

00:46:04So how do we break up this culture?

00:46:12Social and structural transformation we think are important because as we've explained,

00:46:18these issues are longstanding.

00:46:20There have been previous efforts to bring about culture change at the FDIC.

00:46:25We believe that in part because these issues have continued to persist that those efforts

00:46:31have been ineffective.

00:46:32And so our recommendations including the appointment of a monitor to oversee the FDIC's work going

00:46:40forward are intended to bring about change.

00:46:43Thank you.

00:46:44So the FDIC created an action plan that you are all aware.

00:46:50Can you speak to the viability of the plan and whether you think the plan alone is sufficient

00:46:56to address the structural and cultural changes?

00:47:00As we noted in the report, the action plan does contain proposed actions that overlap

00:47:07with our recommendations.

00:47:09And so obviously both were seeking to address a similar or same issue.

00:47:14However, we had some additional recommendations that we believed were important.

00:47:19As Ms. Manu mentioned, very important to us was an appointment of a transformation monitor

00:47:25who could monitor and audit the steps that were being taken and that this person be or

00:47:31the monitor be independent and have the necessary resources.

00:47:36Also we recommended the retention of an external expert who is expert in these areas.

00:47:41And then importantly, we had a recommendation that the review process be conducted by a

00:47:47group that is independent.

00:47:48Thank you.

00:47:49Mr. Chairman.

00:47:50Your time has expired.

00:47:51We'll now recess for four votes and we'll restart with Mr. Lucas when we return.

00:47:57The committee stands in recess.

00:48:06Mr. Lucas for five minutes.

00:48:25Thank you, Mr. Chairman.

00:48:26And I appreciate you yielding to me for questions.

00:48:28You know in my tenure in Congress on a variety of committees, we've dealt with a number of

00:48:32sticky sort of questions, things that had to be addressed, things that could not be

00:48:36allowed to go unchallenged.

00:48:39And I occasionally take a little different perspective sometimes in the questions I ask.

00:48:44So I would start by addressing Mr. Kim.

00:48:47On December 11, 2023, the FDIC Special Review Committee chose your firm to conduct an independent

00:48:53review of the FDIC's culture into allegations of sexual harassment, misconduct, just toxic

00:48:59culture at FDIC.

00:49:02You and your colleagues, Ms. Manu and Ms. Park, led the team for this investigation.

00:49:09Has your team conducted investigations into workplace misconduct before?

00:49:14Yes, we have.

00:49:16Mr. Kim, when the Special Review Committee chose your firm, what was your understanding

00:49:23of the scope of the investigation with respect to the conduct of the chairman?

00:49:29The scope of our review was set forth to us in the resolution from the board and that

00:49:34was for us to conduct an independent review of allegations of sexual harassment and interpersonal

00:49:41misconduct at the FDIC, including hostile, abusive, unprofessional or inappropriate conduct,

00:49:48as well as management's response to these allegations, and the FDIC's workplace culture,

00:49:54including any practices that might discourage or deter the reporting of this type of misconduct.

00:49:59That was the scope that was provided.

00:50:00So that we may better understand your investigation, could you elaborate on the steps your firm

00:50:05took to ensure independence of the investigation, to safeguard the report against any bias?

00:50:12Yes.

00:50:13We obviously, as lawyers, have ethical obligations to our client.

00:50:17In this case, our client was the Special Review Committee of the FDIC board.

00:50:22That was the exclusive ethical duty that we owed.

00:50:29The investigative team understood that, and we also, as a precautionary measure, created

00:50:36walls internally at the firm to separate out any lawyers who do banking work, and we conducted

00:50:46our review in a way that ensured that independence, but also independence within the firm, but

00:50:52also from within the FDIC, because there was a need for independence in that regard

00:50:59as well.

00:51:00There are some who have been distressed about the focus on the current chairman rather than

00:51:05his predecessors.

00:51:06Mr. Kim, during the course of your investigation, if significant issues were uncovered regarding

00:51:11previous chairs that contributed to the toxic workplace at the FDIC, how would that have

00:51:16been included in the report?

00:51:18We did not intend to or focus on particular chairs or not.

00:51:24As we make clear in the report, the workplace culture issues were longstanding that have

00:51:30spanned for many years across different chairs.

00:51:34We addressed the conduct of the current chairman because public reporting relating to his conduct

00:51:41and his reputation was already publicly reported by the time we were appointed, and what led

00:51:46to the need for an independent review as opposed to a review led by management, which

00:51:51is what was contemplated before, and for that reason, as well as the reason that he is the

00:51:58current chairman, and obviously, as many people reported to us, culture starts at the top,

00:52:05and also because it's relevant to the implementation of the recommendations that we deemed it appropriate

00:52:12and necessary to cover his conduct as well in the way we did in the report.

00:52:16Continuing my line of thought, Mr. Kim, of course, as you're gathering all the information

00:52:22and determining what is relevant to the investigation, not every piece of data would be included

00:52:28in the final report.

00:52:30From your interviews with current and past employees, was there evidence of substantial

00:52:35misconduct, misbehavior like Mr. Grunberg's from the previous chairman that was left out

00:52:41of the report?

00:52:43As you've noted, not everything that we learned was set forth in the report.

00:52:48That includes, with respect to anyone, including the current chairman, what we included was

00:52:53what's relevant and necessary to understand our factual findings and to support our recommendation.

00:52:59That's what we included in the report.

00:53:01One last question briefly, Mr. Kim.

00:53:03Would you expand on how Chairman Grunberg's leadership may be a challenge to the FDIC's

00:53:08cultural transformation that we all want?

00:53:12We did not in the report, nor do we today, take a position on whether the current chairman

00:53:18should or should not stay as the chair of the FDIC.

00:53:24We believe that to be beyond the mandate of our review.

00:53:28We wanted to review and investigate the facts set forth, the facts that were necessary to

00:53:35understand our findings, and the facts that were necessary to support our recommendation.

00:53:42Thank you, Mr. Kim.

00:53:43I yield back, Mr. Chairman.

00:53:44The gentleman's time has expired.

00:53:46With that, the gentleman from Massachusetts, Mr. Lynch, is recognized for five minutes.

00:53:51Thank you, Mr. Chairman.

00:53:53I want to begin by just saying there's a certain element of disingenuousness in terms of the

00:54:00Republican position on abuse of women in the workplace.

00:54:06We hear much complaint about it here with respect to a Democratic appointee, Mr. Grunberg,

00:54:16who's admitted that he's leaving the office, but yet I just want to point this out.

00:54:23All my Republican colleagues are supporting President Trump, former President Trump, who

00:54:30has got an atrocious, an atrocious and long record of poor treatment, not only poor treatment,

00:54:40but-

00:54:41Mr. Chairman?

00:54:42I'm speaking.

00:54:43I'm speaking.

00:54:44This is my time.

00:54:47And remember, the relevance here is the next president will appoint, will appoint the FDIC

00:54:54chair that we're questioning conduct of today.

00:54:58So this is about the fitness and the true and genuine concerns that my colleagues have

00:55:08with respect to what has happened here.

00:55:13Let's put aside for a minute the fact that he's a convicted felon on a deal, on a deal

00:55:19with a porn star that the-

00:55:22Mr. Chairman, that is not correct.

00:55:25That is not correct.

00:55:26That is not correct.

00:55:27This is my time, Mr. Chairman.

00:55:28This is my time.

00:55:29This is my time.

00:55:30Hold on.

00:55:31Hold on.

00:55:32A civil conviction by a jury-

00:55:33The gentleman will suspend.

00:55:34Just a moment.

00:55:35We'll suspend the clock.

00:55:37So the gentleman cannot interrupt that way.

00:55:39And I would remind the gentleman from Massachusetts to direct his remarks to the chair.

00:55:44Yes.

00:55:45And we will, you will have your time.

00:55:46With that, the clock may resume.

00:55:48Thank you, Mr. Chairman.

00:55:49I respect that.

00:55:50And I appreciate that.

00:55:52And, you know, we're talking about someone who has been convicted by a jury in a civil

00:55:59court for sexual abuse.

00:56:01And then, you know, I could have brought in a tape here of the Access Hollywood thing

00:56:07where he talked about how he, you know, grabs women's genitals and kisses them, you know,

00:56:14right off the bat, you know.

00:56:16So I just want to rebalance this about what we're doing here today.

00:56:23And if we're truly concerned about the way women are treated in the workplace, there's

00:56:30real reason to question, you know, the genuineness of the criticism on my colleague's part.

00:56:39I do want to ask, though, I'm a former union president.

00:56:42Let's get to the workplace here.

00:56:44I'm a former union president.

00:56:45I was a union steward before I was a union president.

00:56:49In the workplace, if some of this stuff, which was totally unacceptable, and I totally agree

00:56:55with the factual basis of the record and the investigation, why was not Mr. Kim or Ms.

00:57:04Maynu, why was not the union involved here?

00:57:07As a union steward, I would have been the first person in the workplace to know about

00:57:12that activity, and there would have been a duty of fair representation on my part as

00:57:18a union steward to go to bat for those women, for those employees that were being treated

00:57:23like that.

00:57:24What happened here?

00:57:25You did the investigation.

00:57:26What happened with—so this is a union workplace, the NTEU, National Treasury Employees Union

00:57:32is the collective bargaining representative for these employees, I believe.

00:57:37So what happened?

00:57:38What happened there?

00:57:39So there's a breakdown there.

00:57:43Thank you, Congressman.

00:57:45You're correct that the National Treasury Employees Union is the relevant union here,

00:57:49and as we explained in our report, we spoke to union representatives as part of our effort

00:57:55to understand the scope of issues relating to interpersonal misconduct at the FDIC.

00:58:03And in terms of the union's role, the union did have a role in providing support, both

00:58:10to employees—

00:58:11How many grievances were filed?

00:58:13That would be the normal—if I'm the union steward, I would file a grievance every single

00:58:17time something like that happened.

00:58:19How many grievances were filed?

00:58:23We know that grievances were filed along with complaints under the anti-harassment program

00:58:30and under the FDIC's Equal Employment Opportunity Policy.

00:58:35And where did those grievances go?

00:58:36Was there a procedure where they could be addressed?

00:58:40There was a four-step process.

00:58:43The first step was for any grievances to go to a supervisor, all the way up to the chair

00:58:49or the chair's designate.

00:58:51How many were sustained?

00:58:53How many grievances were sustained, and what action happened as a result of that?

00:58:59What we say in our report is that insufficient disciplinary actions were taken in response

00:59:04to allegations of interpersonal misconduct.

00:59:06And one of the statistics we cite is from the FDIC's reports that it made to Congress

00:59:12that out of 92 complaints that were made between 2015 and 2023 under the FDIC's anti-harassment

00:59:19policy, the most serious disciplinary action that was taken was suspensions, and that was

00:59:24in two instances.

00:59:26Gentleman's time has expired.

00:59:28Thank you for your indulgence, Mr. Chairman.

00:59:30I appreciate it.

00:59:31Thank you.

00:59:32I yield back.

00:59:33Chair, I would also like to remind the members up here about what the hearing is supposed

00:59:37to be about, but also about Rule 17.

00:59:40Rules of Decorum do require us to not impugn members, other members, the president, or

00:59:47we would include nominees in that.

00:59:49And with that, the gentleman from —

00:59:51Will the gentleman yield?

00:59:53I will not.

00:59:54I will also note that the folks may use their five minutes as they wish.

01:00:02Parliamentary inquiry?

01:00:04What is the gentlewoman's parliamentary inquiry?

01:00:07I want to be sure about what you are advising us.

01:00:12Are you advising us that we are not to make any statements about the president?

01:00:16No.

01:00:17Would you please clarify?

01:00:19I would like us to adhere to Rule 17, which says that we should not mischaracterize members

01:00:25or current members of government or past members of government.

01:00:30That is it.

01:00:31So, would the gentleman —

01:00:32Despite that.

01:00:33The gentleman from Texas is recognized for five minutes.

01:00:34Mr. Chairman, thank you very much.

01:00:36I'd like to delve into and take a little bit further approach.

01:00:40Mr. Hsu and also Mrs. — or Ms. Manino, thank you for your comments today.

01:00:49Both of you used the word several times, retaliation.

01:00:54Are you both lawyers?

01:00:57Yes.

01:00:59What is the federal law related to retaliation, at least in your opinion, that this whole

01:01:07agency, all the management and others should be — have been advised of?

01:01:12Because I've heard you twice say there's a concern about retaliation.

01:01:20An example would be the anti-discrimination laws, which, in addition to making discrimination

01:01:27based on protected classes unlawful, would also cover any retaliation against individuals

01:01:34who make complaints about discrimination.

01:01:38Would that be the same as a whistleblower, or is a whistleblower a different type of

01:01:43status?

01:01:44In other words, if a person's allowed to give feedback, their name, information, specific

01:01:49information, you know who they are, is that treated differently under the law than whistleblower?

01:01:54I think the answer is yes.

01:01:59Could you just rephrase your question?

01:02:01Yes, ma'am.

01:02:02Make sure I understand it.

01:02:03Yes, ma'am.

01:02:04And thank you.

01:02:05There is feedback that was provided within the agency.

01:02:10I don't know what that venue was, but we've heard about some 500.

01:02:14There were some 300, perhaps, where they provided their name and direct information before you

01:02:21get back to them.

01:02:22You've already said, yes, there would be federal law related to the protection of those people,

01:02:28at least as it relates to someone retaliating against them.

01:02:34Correct.

01:02:36Is there the same or different law that generally would apply to whistleblowers, and did you

01:02:41have whistleblowers?

01:02:45There are also specific whistleblower laws that protect individuals who report violations

01:02:51of law, so that's another example.

01:02:55Okay.

01:02:56So now I've heard both of you mention retaliation, probably as, at least in your mind, as a source

01:03:03of probably what is still there.

01:03:06What has taken place in relationship, and who would be responsible for that observation

01:03:14and fixing where it dealt with retaliation in this FDIC agency?

01:03:22To elaborate on the concern about retaliation, one concern that we heard was, in addition

01:03:28to confusion about whether any conduct violated FDIC policies and who to report to, there

01:03:36was also a concern about whether FDIC employees could trust the reporting channels.

01:03:40Yes, ma'am.

01:03:41I want to go to who is responsible for directly taking that issue on, with the knowledge that

01:03:47we've heard the current leadership is incapable of effectively managing the organization.

01:03:54Who is taking that issue on within the agency, notwithstanding what they should not be waiting

01:04:01for a new person to be approved by the United States Senate?

01:04:05Who is taking this issue of retaliation on right now and has been in the past year?

01:04:13Who?

01:04:15Name that title.

01:04:16Sir, Congressman, I believe the full board needs to be engaged in implementing it.

01:04:21Well, the full board's great.

01:04:22Okay.

01:04:23The full board.

01:04:24All right.

01:04:25Who?

01:04:26You represent the board.

01:04:27I'm on the board, yes.

01:04:28What are you doing to make sure that retaliation is not alive and well and will not be tolerated?

01:04:34What are you doing then, sir?

01:04:36So the fear of retaliation requires both cultural and structural transformation.

01:04:42There is currently a process that is broken, where employees of the FDIC—

01:04:48When will that be fixed, sir, since you're the responsible party?

01:04:51The board is currently taking action to create a new structure.

01:04:54When will that be fixed, and does that require a new head of agency to approve that?

01:05:00It is being fixed as we speak.

01:05:01The board is currently—

01:05:02It is being fixed.

01:05:03It is being fixed currently, yes.

01:05:04Would you please provide this committee, both Republicans and Democrats, an answer that

01:05:10when that has been fixed, notwithstanding who the director is, it is the board.

01:05:16I sure appreciate your help and thank both of you very much.

01:05:20I just think that some of the things, going back to the conversation about what needs

01:05:24to be fixed today, within a division of labor, there are certain things the new chairman

01:05:30would need to be responsible for, and there are also things that are current issues, and

01:05:36I appreciate your help and thank you very much, Mr. Chairman.

01:05:38I yield back my time.

01:05:39The gentleman's time has expired.

01:05:40With that, the gentleman from California, Mr. Sherman, is recognized for five minutes.

01:05:46Thank you.

01:05:48We've got a problem since the 1980s.

01:05:52The reports, I won't repeat, just because they've been stated so often, but they show

01:05:57a horrendous picture, and now we are close to—well, I can't say solving, but to making

01:06:07this agency as good as it can be, as far as its workplace culture.

01:06:15I want to commend the law firm for its report.

01:06:18I want to commend the Wall Street Journal for really forcing that report to be commissioned.

01:06:26And now we are so close, Greenberg is resigning, Biden is going to appoint a successor, and

01:06:39I want to call upon the administration to appoint a successor as soon as possible.

01:06:45But I want the Republican members of this committee to take the opportunity to demand

01:06:50that the Senate not engage in dilatory tactics to prevent that successor from being confirmed.

01:06:58A prompt hearing, and then an up-or-down vote without any of the Senate tricks, because

01:07:06I was one of those who asked for this hearing, but that was before Greenberg announced his

01:07:12retirement.

01:07:13The title of this hearing is about the toxic workplace culture at the FDIC.

01:07:19If the Senate unduly delays the confirmation, we need another hearing, Mr. Chairman, on

01:07:24the Senate's toxic culture of delay, which would be preventing us from dealing with the

01:07:31toxic culture at the FDIC.

01:07:35Now, some have argued that somehow Signature Bank and First Republic are a result of Greenberg's

01:07:43temperament.

01:07:44Mr. Yu, you were there.

01:07:46Did these banks fail because they had bad management and they failed to account for

01:07:52interest rate risk, or did they fail because of Greenberg's personality?

01:07:59Thank you for the question, Congressman.

01:08:01So the OCC does not regulate Silicon Valley Bank?

01:08:05Yes, I'm asking you in your role as a member of the FDIC.

01:08:11So the factors that led to the failure are well laid out in the reports that the FDIC

01:08:18has.

01:08:19Do any of those reports say it's Greenberg's personality?

01:08:25That's not mentioned.

01:08:26And has anyone—you know, you're on the FDIC.

01:08:31Has anyone at the FDIC identified for you, I was going to bring this First Republic issue

01:08:39up or Signature Bank up, but I failed to bring it up because I was worried about the chairman's

01:08:43personality.

01:08:44Has anybody stepped forward then and said the personality stopped them from taking action?

01:08:52The National Treasure Employees Union represents the FDIC employees.

01:08:55I wonder whether Mr. Hsu and Mr. McKeon can commit to working with the NTEU as the FDIC

01:09:07moves forward to improve its workforce culture.

01:09:10Mr. Hsu?

01:09:12Yes.

01:09:13Yes.

01:09:14Good.

01:09:15I would point out that there are 6,600 employees that deserve a good workplace culture.

01:09:28But there are 330 million Americans that deserve good bank regulation.

01:09:34And if we see a—if Mr. Greenberg resigns before his successor is confirmed, the FDIC

01:09:48could be split two to two.

01:09:51Mr. Hsu, if the FDIC was split two to two and we had another big crisis, Silicon Valley

01:09:57Bank Two, is it possible that the FDIC would split two to two as to what action to take

01:10:04if they only had four commissioners?

01:10:07It's hard to speculate about that.

01:10:10But there's a reason why you have an odd number of commissioners, correct?

01:10:14So that you're less likely to split two to two?

01:10:19I don't want to speculate about that.

01:10:21Okay.

01:10:22Well, I won't ask you to speculate, but last I checked, two plus two was four.

01:10:26If you have only four members, then it can divide two to two.

01:10:31I'd finally point out that Silicon Valley Bank also failed because interest rate risk

01:10:38was not built into sufficiently our bank examination process, and we need to mark to market all

01:10:47long-term instruments, debt instruments that banks hold, whether it is available for sale

01:10:54or held to maturity.

01:10:55And until we do that, we will see banks put too much of their money on Wall Street instruments.

01:10:59I yield back.

01:11:00The gentleman's time has expired.

01:11:02The gentleman from Missouri, Mr. Lutgemeyer, the chair of the National Security Subcommittee.

01:11:10That's a very long name, Mr. Chairman.

01:11:12Yes, I was truncating it in my own head, so sorry about that.

01:11:17Thank you.

01:11:18Thank you, Mr. Chairman.

01:11:19Thank all of you for being here today.

01:11:21This is a very serious matter that deserves a lot of insightfulness and a lot of, I think,

01:11:26insightful comments and questioning.

01:11:29So my first question is to Mr. Hsu this morning.

01:11:32Do you take this report seriously, Mr. Hsu?

01:11:35Very seriously, yes.

01:11:36Okay.

01:11:37You say in your written testimony that you are committed, and I quote, committed to holding

01:11:40any employee, any employee engaging in misconduct accountable, and your main objective is to

01:11:44protect the employees.

01:11:46You believe this?

01:11:47Yes.

01:11:48Can I take an action to fire Mr. Gruenberg at this point?

01:11:51The actions we're focused on are actions that I can influence, which relate to adopting

01:11:56and hiring a third-party expert.

01:11:57You can't influence his continuing to be at the head of this agency?

01:12:01That decision is for the White House and for the Senate.

01:12:03Can't the FDIC board do something about this?

01:12:06I'm sorry?

01:12:07Can't the FDIC board do something about this?

01:12:10The FDIC board doesn't have authority.

01:12:12What happens if Mr. Gruenberg commits a felony or winds up in jail tomorrow?

01:12:18Who takes over?

01:12:19I think under the rules, then the vice chair would.

01:12:24Well, just chairman.

01:12:25I'll be darned.

01:12:26Okay.

01:12:27Mr. McKernan.

01:12:28Do you take this report seriously?

01:12:31Absolutely.

01:12:32In your testimony, you say that you hope accountability is not far off.

01:12:36Do you believe this?

01:12:37Do I believe it's far off?

01:12:39Yeah.

01:12:40I'm not particularly optimistic we'll see accountability soon.

01:12:43Okay.

01:12:44Yeah.

01:12:46I'm concerned about that part.

01:12:48You also say the reconciling report comes down to a question of leadership.

01:12:55An organization can prioritize protecting employees, it can root out wrongdoers and

01:12:58make an example of them, but we need leaders.

01:13:01Why are you not taking action?

01:13:04Why are you not pressing for Mr. Gruenberg to resign?

01:13:08Well, I am pressing for the board to take a more active role.

01:13:11To your earlier question, I think there's a real question here that we at the board

01:13:14need to consider during this interim when we're waiting for a new chair or waiting for

01:13:19the current chair to resign and have the acting chair.

01:13:21I think the board needs to take a more active role here, and I have been pushing for that.

01:13:25Well, I appreciate that because I think you're talking a minute ago about having leaders

01:13:30and solving these problems, and you guys are in a position, Mr. McKernan, Mr. Hsu, of being

01:13:35leaders in this situation.

01:13:37As leaders, you need to step up and stop the nonsense.

01:13:40Otherwise, you're an enabler.

01:13:41You continue to allow this to go on.

01:13:43You're no better than Mr. Gruenberg, in my mind.

01:13:45If you allow it to go on, it's got to be stopped.

01:13:51Mr. Kim and Ms. Maynew, is rape a crime?

01:13:56You both are attorneys.

01:13:57You tell me.

01:13:58Yes.

01:13:59Rape is a crime.

01:14:01In your report, you indicate that at this hotel that a lot of the FDIC folks go to when

01:14:08they're in training, there was a rape that occurred, besides a bunch of, I think, 24

01:14:12more instances of harassment of some kind.

01:14:16Was anybody prosecuted as a result of that?

01:14:20I believe there was a rape that was alleged and presented to the local police department.

01:14:24I don't believe there was ...

01:14:26There was no follow-through on that?

01:14:29Not that we're aware of.

01:14:31We have an alleged crime here that nobody took care of?

01:14:34Was it swept underneath the rug?

01:14:37This is a very serious crime.

01:14:38I mean, I don't understand how they can get away with this, personally, but you're telling

01:14:42me they swept it underneath the rug?

01:14:44We're not aware that it was swept under the rug.

01:14:47What we are aware of is the information that we were able to obtain from the local police

01:14:51department and that there was ...

01:14:52But it is a crime?

01:14:53... no action taken.

01:14:55Rape itself is a crime, of course.

01:14:56Okay.

01:14:57So we're allowing criminal activities to go on within the agency, if that's the case.

01:15:04Just to add to what Mr. Kim said, there were two reports of sexual assault at the Seidman

01:15:10Center.

01:15:11For one of those two sexual assaults reported, we understand from the FDIC's Office of Inspector

01:15:19General that no charges were filed because the claims could not be substantiated by law

01:15:23enforcement.

01:15:24As to the second incident, we understand from the Office of Inspector General that the investigation

01:15:30into that incident is ongoing, so we were not able to get more information about it.

01:15:34Does the intimidation of the director have anything to play in that, do you think?

01:15:37The intimidation of the chairman have anything to do with that not being taken up?

01:15:42There's no indication that the chair related to this.

01:15:46Okay.

01:15:47Very good.

01:15:48Well, Mr. Su, you took part in the coup that occurred with Ms. Williams over a major disappearance

01:15:54of opinion over a merger issue, yet you've let this crime go unchallenged.

01:16:01Sexual harassment and racial discrimination, which is documented, continue to go unchallenged.

01:16:08I'm curious as to why we don't take further action.

01:16:10It just boggles my mind.

01:16:12But it's about politics, pure and simple, in my mind.

01:16:16We have a Republican who's the vice chair, and Mr. Greenberg steps down, you've got a

01:16:19Republican in the chair, and it's all about that.

01:16:21It's not about what's good for the people of the FDIC, it's not what's good for the

01:16:25industry or the banking industry, it's about politics.

01:16:28And that's the same, because both of you sit in a position to stop the nonsense.

01:16:32Please do.

01:16:33Gentlemen's time has expired.

01:16:36The chair recognizes the gentleman from Texas, Mr. Green, for five minutes.

01:16:41Thank you, Mr. Chairman.

01:16:42I thank the witnesses for appearing today.

01:16:46Permit me to ask a question about the composition of the board.

01:16:51Do you agree that the board has some five members?

01:16:55Mr. Kim?

01:16:59The board of the FDIC?

01:17:00Yes.

01:17:01Yes.

01:17:02And do you agree that, well, let me just ask you, how many women are among the five?

01:17:11There are no women among the five.

01:17:14Five men.

01:17:15Correct.

01:17:16I believe we live in a world where it's not enough for things to be right, they must also

01:17:20look right.

01:17:21By the way, no disrespect to any of my friends who are on the board.

01:17:26I think highly of you, but it just seems to me that it may be time for us to look to have

01:17:32the leadership of a female.

01:17:35Permit me to ask you about the comment that you made, I believe it was you, Mr. McKernan,

01:17:44you made the comment of this being misogynistic.

01:17:51Explain please.

01:17:53Explain what I mean by that?

01:17:54Yes, sir.

01:17:55This is a characterization of the report that when they describe the workplace culture,

01:17:58clearly may have other examples, but what I understand that to mean is that we have

01:18:02biases here slanted in favor of the male workforce.

01:18:07You've heard the term good old boys?

01:18:09Absolutely.

01:18:10Is that what we're talking about?

01:18:11That's right.

01:18:16Someone used the term patriarchal.

01:18:20Would you speak up, ma'am?

01:18:21I believe you did.

01:18:23I did use that term and that referred to conduct including allegations that there are outdated

01:18:32notions of appropriate and inappropriate workplace behavior as well as favoritism and exclusion

01:18:39of women as well as members of underrepresented groups.

01:18:44Now, ma'am, can you point to in your report where you indicate that a member of the board

01:18:56should be made chair of the board?

01:19:01Can you?

01:19:03If you cannot, you may say no.

01:19:08Could you rephrase the question?

01:19:09I want to make sure I understand it.

01:19:10Can you point to some language in your report where there's an indication that a member

01:19:15of the board should become chair of the board?

01:19:20We do not take a position in our report about who should be in leadership.

01:19:24You cannot.

01:19:25Your report doesn't address that because that's beyond your mandate.

01:19:28It's beyond our mandate.

01:19:29Absolutely.

01:19:30Beyond your mandate, which means that you're not recommending that the vice chair become

01:19:36chair of the board, are you?

01:19:37We're not taking any positions on who should be the chair of the board.

01:19:40When you say this should be done expeditiously, you're not indicating that it must be done

01:19:44expeditiously so that the vice chair can become chair, are you?

01:19:48We are suggesting that our recommendations should be implemented expeditiously to improve

01:19:53the workplace culture at the FDA.

01:19:55Exactly.

01:19:56But not such that a specific person can become chair.

01:19:58We're not taking any position on who should be chair, correct.

01:20:02In this toxic environment with five men at the helm, can you find a reason why a woman

01:20:11should not become the next chair in your report?

01:20:18Absolutely not.

01:20:20It just seems to me that the president is trying as best as he can to do what someone

01:20:26said about a fresh start.

01:20:29Who made that statement?

01:20:30Raise your hand if you said fresh start.

01:20:31Congressman, I believe that was me.

01:20:33Yes.

01:20:34A fresh start.

01:20:35A fresh start, in my opinion, should include bringing a woman, placing a woman at the helm,

01:20:46woman chair.

01:20:48Now, this can be difficult for my colleagues across the aisle to embrace because we quite

01:20:56regularly have all men on our panels and quite regularly I remind them.

01:21:09Quite often the reason we have females is because the Democrats will decide that we

01:21:17need to have some balance.

01:21:20But it's just not unusual to have all white men.

01:21:24This is not getting a feel of where we are.

01:21:27It's the mentality.

01:21:29And this mentality is pervasive not only on this board, this FDIC, but this is something

01:21:36that we've got to deal with across many, many lines.

01:21:41So I want to go on record as supporting a female as the next chair of the board.

01:21:47I think it's time to do that.

01:21:48I yield back.

01:21:49The gentleman's time has expired.

01:21:51The chair will now recognize himself for five minutes.

01:21:55Ms. Manoux, I have a question for you.

01:21:58I've just been kind of hearing between the lines from a lot of my colleagues on the other

01:22:02side about it seems like they seem to think your report was somehow incomplete.

01:22:07Was it incomplete?

01:22:08No, our report...

01:22:10Was it biased?

01:22:12It was not biased.

01:22:13Was it sensationalized?

01:22:15It was not sensationalized.

01:22:16So you believe it's an accurate reflection of the leadership and the culture of what

01:22:21was happening at the FDIC?

01:22:23We do.

01:22:24Okay.

01:22:25I will note, by the way, that we had a woman chair of the FDIC, the last chair of the FDIC.

01:22:33Mr. Hsu helped remove her.

01:22:37So when it comes to equity, we had that.

01:22:43So I do want to say as well about the report, Ms. Manoux or Mr. Kim, a number of the allegations

01:22:53seem to be sort of saying, well, only there was a focus on one particular chair, the current

01:23:00chair.

01:23:01My reading of the report is that former chairs, two women, by the way, were only mentioned

01:23:07in the report for the work that they did attempting to improve the agency culture.

01:23:12Is that accurate?

01:23:17We make very clear in the report that the workplace culture and conduct issues were

01:23:21longstanding.

01:23:22They were longstanding.

01:23:24Who was attempting to fix it?

01:23:26All chairs have taken steps to seek to address them.

01:23:31I understand your delicate position, Mr. Kim, but the simple fact is that you had an open-ended

01:23:38report.

01:23:39There was not problems with the other two female chairs.

01:23:42There was a problem with this chair.

01:23:43So I'm going to move on.

01:23:45A few weeks ago, the FDIC report, a board of directors terminated the Special Review

01:23:50Committee, leaving an agency to handle matters of the independent review internally.

01:23:54The board of directors of the FDIC is supposed to set policy, oversee management, and protect

01:23:59the interests of employees.

01:24:02Director McKernan, what is the role of the board in the day-to-day operations of the

01:24:06FDIC?

01:24:07You were starting to say you were advocating for that.

01:24:08Yeah.

01:24:09When we terminated the Special Review Committee, I was of the view that we really need to have

01:24:12the board step up and take a more active role during this interim.

01:24:15One way to do that would be to establish a board committee, only independent directors,

01:24:20not representative management directors, to oversee implementation of the action plan.

01:24:24Sorry.

01:24:25If Chairman Gruenberg didn't see the cultural problems at the agency for 10 of his 13 years

01:24:30as chairman, shouldn't the board be playing a bigger role in overseeing that cultural

01:24:35change?

01:24:36That is my view.

01:24:37Okay.

01:24:38What specifically can the board do?

01:24:40One option would be to establish a board committee.

01:24:42Okay.

01:24:43But that appears to be rejected by Mr. Hsu.

01:24:45Mr. Hsu, is that correct?

01:24:49I believe the full board needs to be fully engaged in order to back the actions so that

01:24:53the actions that are taken to fulfill the recommendations are long-lasting, they're

01:24:56taken now, they're conducted in full.

01:24:59All right.

01:25:00So, based on the whistleblower reports both before and after the report, Chairman Gruenberg

01:25:05has not been protecting FDIC employees.

01:25:07They don't have competence in him.

01:25:10In fact, I think there was a Wall Street Journal article that literally the title was, he survived

01:25:14a beatdown from Congress, but can he survive one from his own staff?

01:25:19Director Hsu, do you still believe, as you testified in May, Chairman Gruenberg can restore

01:25:23trust at the FDIC and lead changes in the culture during the remainder of his time?

01:25:27And as I said in my opening, is he the right man at the right time with the right ideas?

01:25:33My focus is on the employees of the FDIC.

01:25:36Is he the right person to lead this?

01:25:39So long as the Chairman is delivering on commitments and taking actions, I'm supportive.

01:25:44I'm taking that as a yes.

01:25:46I'm taking that as a yes.

01:25:49It's conditional on taking those actions.

01:25:51Okay.

01:25:52So that's a conditional yes.

01:25:55I'm just not sure why you're so afraid of him, quite honestly, and why you can't admit

01:26:00an obvious truth.

01:26:03That is disappointing because I know, and I believe you know, that the FDIC employees

01:26:09would disagree with you, that he is not the right person to be leading this.

01:26:14So Director Hsu, I think it's finally time to become more active director.

01:26:19I think that your time and certainly your efforts in removing the last female chair

01:26:26of the FDIC for what many of us believe was certainly far less than anything that is being

01:26:32accused or is being alleged right now, you know, when you, it's hard to view that as

01:26:39not for being for political purposes.

01:26:42And I'd say it's time for you to step up and for you to be able to change that.

01:26:47Let's do what's good for the employees.

01:26:50I have been completely focused on trying to establish three actions that are critical

01:26:55to reestablishing trust with the employees of the FDIC.

01:26:57My time is expiring, but you also need to remove the Chairman.

01:27:00With that, I yield back.

01:27:02And with that, the gentlelady from Ohio, Ms. Beatty, who is also the ranking member of

01:27:07the Subcommittee on National Security, is now recognized for five minutes.

01:27:11Thank you, Mr. Chairman.

01:27:12Thank you, Ranking Member.

01:27:14Let me just start by reminding my Republican colleagues that the hearing on Director Gruenberg

01:27:21was our last hearing, where Democrats were very critical of him as well as Jelena McWilliams

01:27:30for failing to address the long span culture of abuse.

01:27:36Republicans continue to point blame on Mr. Gruenberg while he has resigned.

01:27:42And I applaud President Biden for putting a critical eye on identifying a person with

01:27:48the experience, background, and a person who has been tested and supported by Democrat

01:27:57and Republicans to be confirmed.

01:28:02And the next potential FDIC Chair that I think we're expecting to be nominated meets all

01:28:10of those standards, and that's, as we have heard before from our Ranking Member and others,

01:28:16Christy Goldsmith-Romero.

01:28:18Again, she meets all of those standards.

01:28:22If Republicans care about the organization, the people, and moving forward, then they

01:28:27would follow Democrats and put people over politics.

01:28:32I think that, you know, there's a lot of hypocrisy, in my opinion, Mr. Chairman, here of Republicans

01:28:40being outraged by sexual harassment, misconduct, in this context, but not in other contexts.

01:28:50My senior Republican colleague from Missouri asked the question about rape and if rape

01:28:58was a crime, and it was answered by our expert witness as yes.

01:29:04But I don't see, Mr. Chairman, Republicans calling for the resignation or removal of

01:29:11your last party leader for the exact same conduct that Trump had, hypocrisy.

01:29:22Now, I think it's very interesting that you asked the witness or you stated that he was

01:29:31afraid of the director.

01:29:36So let me say to my Republican colleagues, why are you so afraid of Trump?

01:29:41If it's in alignment to say that he's afraid of someone that he had to work for, and Trump

01:29:47has done many of these same things, and I'm within Rule 17, which I just took the last

01:29:5320 minutes to read, Mr. Chairman, as much as anybody else over there has said and talked

01:30:00about President Biden.

01:30:02So I think it's interesting.

01:30:05I did not hear you answer the question if you are afraid or ever felt afraid.

01:30:11I'm going to extend it.

01:30:12Have you ever felt threatened or afraid of the chair?

01:30:18No.

01:30:19And to your Republican, have you ever felt threatened or afraid of the chairman?

01:30:25No, Congresswoman.

01:30:26Okay.

01:30:27Thank you.

01:30:28Now, let me go to another question.

01:30:31I want to thank my colleague, Mr. Green, who talked about having a female, and I'm sure

01:30:37he was speaking in the spirit of diversity and inclusion.

01:30:42To the acting comptroller, either one of my Democrat and Republican, I'd like to start

01:30:48with you to understand the diversity and inclusion efforts at the FDIC.

01:30:55The lack of diversity at this Prudential Regulatory Agency, I believe, continues to lag.

01:31:01It's clear that it's not just diversity, but it's also inclusion, and it must be improved,

01:31:06I believe, within your agency.

01:31:09So not only women, but people of color.

01:31:12I think it's important when you talk about the culture that people come from, whether

01:31:17it's rural America, whether it's suburban, so it's not just race and gender.

01:31:23It's far more than that.

01:31:24What steps could you tell us that the FDIC is taking to do that, and especially at the

01:31:30GS-15 level?

01:31:35And we only have about 30 seconds.

01:31:36I'm going to give you each 10, and if you don't know, say you don't know.

01:31:39So I believe the action steps that are laid out in the agency's action plan, as well as

01:31:44the recommendations that are there in the report, will go a long way to creating the

01:31:49environment that will enable-

01:31:51So you think there's enough in the report that will address it?

01:31:53It's a starting point.

01:31:54Okay.

01:31:55To your colleague.

01:31:56Congresswoman, I agree.

01:31:58I certainly support your point here around the need to really foster more diversity and

01:32:03inclusion at the agency.

01:32:04I think we have a good program in place currently to both recruit and retain.

01:32:09Retain is a really key point.

01:32:10I only have two seconds, so you can give me a written answer.

01:32:13Are there two top recommendations that you would give that would be the most?

01:32:18My time is up, so you can submit.

01:32:20I'll take that in writing, as she had indicated.

01:32:23With that, gentleman from Kentucky, Mr. Barr, is recognized for five minutes.

01:32:27Thank you, Mr. Chairman.

01:32:29As you all know, on May 20th, Chairman Gruenberg announced that he would resign after the Biden

01:32:35administration nominates and the Senate confirms his new successor.

01:32:39Given the culture and the toxic workplace environment, that's a very swamp-like thing

01:32:46to do.

01:32:47That's why American people hate Washington, D.C., because it's not a resignation.

01:32:51Resignation should have come months ago, but instead, it's not a resignation.

01:32:56In fact, according to a Wall Street Journal article, Gruenberg himself suggested he's

01:33:00staying because if he leaves, the agency will have two Democrats and two Republicans.

01:33:07This is supposed to be an independent regulatory agency, not a partisan agency.

01:33:12But Gruenberg is saying the reason he's not resigning is because, oh my gosh, it's no

01:33:16longer going to be a partisan majority.

01:33:19That means he's more concerned about threats to the Biden administration's partisan regulatory

01:33:25agenda than he is about cleaning up the mess he created.

01:33:31Mr. Hsu, do you believe that you have a responsibility as an FDIC board member to protect the independence

01:33:38and credibility of the FDIC as an institution, not the partisan makeup of the FDIC?

01:33:47The independence of the FDIC is critical, just as critical as taking actions to protect

01:33:51the employees of the FDIC.

01:33:52Yeah, and so resigning now is how you protect the employees of the agency, not after the

01:34:01Biden administration can protect its partisan majority.

01:34:07Let me ask you this, Director McKernan.

01:34:09Have you heard from employees at the FDIC following Chairman Gruenberg's announcement

01:34:12that he would retire later instead of now?

01:34:18Have I heard from them?

01:34:19Yes.

01:34:20And tell me, what have they told you?

01:34:22Are they able to carry out their work without distraction?

01:34:25I would say the universal view.

01:34:27There's a lot of views about the report, but universally, you're exhausted and distracted.

01:34:31Are employees able to effectively do their jobs?

01:34:34I think it is a significant headwind.

01:34:37In your opinion, how does the failure of Gruenberg to resign today, how does that prevent

01:34:43the FDIC from meeting its responsibilities as an independent federal regulator?

01:34:47Congressman, as I've said, we need a fresh start sooner rather than later.

01:34:51That's important to establish credibility.

01:34:53It's important to bring in someone that has the moral authority to really push change.

01:34:56And it's important so we have clean hands to sort of deal with our legacy issues.

01:35:00I'll stick with you, Director McKernan.

01:35:02Last month, the FDIC announced that there are 63 banks at the brink of insolvency in

01:35:06the United States.

01:35:07The commercial real estate office situation is a problem.

01:35:11I don't think it's systemic, but I think the FDIC is going to have a lot of important work

01:35:15to do with distressed banks that are overexposed to commercial real estate in a high interest

01:35:22rate environment over the next several years.

01:35:24Resolution of those institutions is going to be important for the stability of our financial

01:35:30system.

01:35:32In your judgment, is the safety and soundness of our system threatened with this distraction

01:35:38of Chairman Gruenberg hanging on to power?

01:35:42And can he manage these risks that are coming at us like a freight train?

01:35:47The distraction certainly does not help.

01:35:49That's why I say we need a fresh start.

01:35:50Well, I think that's really important.

01:35:53That's the important point here.

01:35:55It's important to change the culture and clean up the toxic culture there and get morale

01:35:59and retention of examiners and recruiting of new examiners to do that.

01:36:04But the job at the FDIC over the next couple of years, when we have a wave of defaults

01:36:10in commercial real estate and some of these banks that are overexposed, the FDIC's got

01:36:14a big job ahead of it.

01:36:16And every day that goes on that Gruenberg is there jeopardizes the safety and soundness

01:36:23of our financial system.

01:36:24The FDIC needs to be on the ball right now.

01:36:28And I'll finish with Comptroller Hsu.

01:36:32On May 15th, when you last appeared with Mr. Gruenberg, Mr. Meeks asked you whether you

01:36:37thought that the Chairman could restore trust and credibility at the FDIC.

01:36:42You testified that you thought he could.

01:36:43And then you answered Mr. Huizinga based on certain conditions.

01:36:48I asked you, given his history of hostile behavior, you passed it off as passion, just

01:36:53passion.

01:36:55But you finally admitted the issues are severe.

01:36:59Recall the independent report that you oversaw with Director McKernan.

01:37:03Is it still your testimony that you believe Chairman Gruenberg can restore trust and credibility

01:37:08at the FDIC?

01:37:11I believe we need to take action right now with regards to changing the structure of

01:37:16the agency, getting a third-party expert, and hiring an independent monitor.

01:37:20So do you agree or disagree with the findings of the report that you oversaw?

01:37:24I agree with all the findings of the report.

01:37:26Okay.

01:37:27Well, why shouldn't Gruenberg step down immediately?

01:37:30My focus is on the action.

01:37:31Well, your focus should be on the leadership that has caused the problem.

01:37:35And he needs to resign now.

01:37:38I yield.

01:37:39The gentleman's time has expired.

01:37:40With that, gentlemen from Illinois, Mr. Foster will be recognized, but I do want to remind

01:37:45my colleagues, I will do this periodically, that under Rule 17, members, the President

01:37:50and the presumptive nominee of both parties, the President are protected.

01:37:54Members will refrain from engaging in personalities, in other words, it's about policy and legislation,

01:38:01it's fine.

01:38:03With that, Mr. Foster, you're recognized for five minutes.

01:38:05Thank you, Mr. Chairman.

01:38:06I have to say that I concur and I look forward to my Republican colleagues encouraging their

01:38:13Senate colleagues to rapidly confirm the replacement for Mr. Gruenberg.

01:38:17I just, well, I think I speak for many members of this committee when I say that I was appalled

01:38:22by the findings of the Clery report.

01:38:24It painted a picture of an agency played by toxic culture that has allowed inappropriate

01:38:29workplace conduct to persist for far too long without accountability.

01:38:33And it is appropriate to bring in new leadership to the FDIC that has a demonstrated commitment

01:38:38to addressing these issues and the credibility to instill positive change at an agency that's

01:38:44long struggled with these issues that we're discussing today.

01:38:48I encourage the Biden administration to quickly nominate a new FDIC chair, which I understand

01:38:53is underway, and for the Senate to confirm them without delay.

01:38:58From my experience as a business owner and as an organization leader, I know that culture

01:39:02starts at the top.

01:39:04Many current and former FDIC employees bravely shared their stories for this report and it's

01:39:10important that swift action be taken to show them that their voices have been heard.

01:39:14The action plan that was put forward last December and the recommendations in the Clery

01:39:18report are important steps and I encourage future FDIC leaders to dutifully implement

01:39:24those recommendations and the other changes that may prove to be necessary.

01:39:30But I'd be interested in what timescale we can expect for these changes.

01:39:36And I'll start with this.

01:39:39So Acting Controller Zhu and Minister McCarnon, as directors of the FDIC, you've experienced

01:39:45the fact that data on misconduct throughout the organization has not been collected regularly

01:39:50or uniformly.

01:39:52So my question is, you know, has this been fixed?

01:39:54You know, it has not been regularly provided, apparently even to directors and senior management.

01:40:00This issue was highlighted in both the Inspector General's 2020 evaluation and the Clery report.

01:40:06So first, do you believe this was an impediment to your understanding the full scope of what

01:40:12has been going on?

01:40:13And secondly, is that part at least fixed today?

01:40:16If there is a complaint that comes in today, is it being logged in a systematic manner?

01:40:21I'll start with Acting Controller Zhu.

01:40:25Thank you very much for the question.

01:40:26So I think it has been highlighted previously, recordkeeping challenges at the agency have

01:40:31been an impediment to having the proper culture and the structure to be able to deal with

01:40:37these issues.

01:40:38That is one of the recommendations that has to be pursued.

01:40:40There are some predicates before we can get to that, though.

01:40:43There needs to be a third-party expert, there needs to be an independent monitor, and there

01:40:46needs to be a safe reporting channel for all employees in order to get those foundations

01:40:52so then that recordkeeping can be addressed in due time, so that all these recommendations

01:40:56have to be implemented in full.

01:40:59We're going to do that as quickly as possible.

01:41:02In the interim, is there any improvements that have been made in the record reporting

01:41:06and keeping?

01:41:07Has at least a memo gone out to everyone?

01:41:09Hey, do something better than you've been doing so that whoever comes in to finish cleaning

01:41:14up the situation will say, here is a comprehensive list of everything, every complaint that's

01:41:20been received for the last six months or whatever.

01:41:24I believe that in the agency's action plan, there are sub-action plans within that.

01:41:28Those have been assigned.

01:41:29There are sponsors.

01:41:30I believe that recordkeeping has been part of that.

01:41:32Well, I don't know if Director McKeon has other...

01:41:34Yeah.

01:41:35No, I think I concur with that.

01:41:36The only thing I might add here is that even if we have the most ideal reporting mechanism

01:41:41and recordkeeping mechanism in place, it's not going to work if people are afraid of

01:41:45retaliation, and that's not policies, procedures, training.

01:41:49That's a change in values, and that's going to be something that is going to have to be

01:41:53like a cycle that builds.

01:41:54We're going to have to show that through discipline and by championing people who do it well.

01:41:59People that are thinking of reporting something will look at whether other people that report

01:42:04them actually get their complaints addressed or whether they're swept under the rug.

01:42:08It's going to be the work of years to let everyone understand that it's an organization

01:42:14that takes these complaints seriously.

01:42:19Can you give me some idea of the timescale?

01:42:21When should we really expect measurable changes in the organization, assuming that all of

01:42:26these are implemented?

01:42:28Your point about trust is really critical.

01:42:31There is a reason that FDIC employees have been skeptical of these efforts in the past,

01:42:37and that trust is going to be established through consistent actions over time that

01:42:42show that it protects them.

01:42:44In this process that we established for the hotline that Clery ran, there was skepticism

01:42:49about using the hotline for some time.

01:42:51It took time for brave employees to come forward and use it and realize, okay, this is different.

01:42:58I can trust this.

01:42:59They could tell their colleagues.

01:43:00Those hotline calls, the hotline usage improved over time because people trusted it.

01:43:06We need to do the same as an agency.

01:43:07That's why it's so critical that we stand up these new structures immediately with urgency,

01:43:13that they're credible, and that people don't have that fear of retaliation.

01:43:17And so we have to monitor that as the hotline moves.

01:43:20Yes.

01:43:21The gentleman's time has expired.

01:43:22Thank you.

01:43:23I yield back.

01:43:24With that, the gentleman from Texas, the skipper of the Republican baseball team, which

01:43:29we have a big game tonight, is recognized.

01:43:32Mr. Williams is recognized for five minutes.

01:43:34You're going to do well tonight.

01:43:35Thank you for that introduction.

01:43:38Director McKernan, last November, after the Wall Street Journal published the first article

01:43:42about the FDIC's culture, Chairman Gruenberg announced that he made the decision to hire

01:43:46Baker Hostetler to conduct a top-to-bottom assessment of workplace culture issues at

01:43:51the FDIC that same day.

01:43:53When the second Wall Street Journal article came out detaining Chairman Gruenberg's misconduct,

01:43:57the FDIC board of directors instead created a special review committee and appointed you

01:44:01and Director Hsu as its co-chairs.

01:44:05So Director McKernan, did Chairman Gruenberg participate in any decisions made by the special

01:44:10review committee?

01:44:11No.

01:44:12Why didn't he participate?

01:44:13I think it's important for the independence of the process that this be a process overseen

01:44:17entirely by independent directors.

01:44:20Chairman Gruenberg was excluded from the special review committee and was removed from

01:44:23the creation of the action plan because he was part of the problem at the FDIC.

01:44:28Now, through our committee's investigation and the clarity report, we've seen multiple

01:44:32instances of bullying and misconduct from the chairman himself.

01:44:34If he wasn't fit to be part of these initial process or culture changes, wouldn't you agree

01:44:39that there is a concern that he is not properly leading the implementation of the action plan

01:44:45and clearly God leaves recommendations?

01:44:46Congressman, I think it's an important point.

01:44:49Like I've said, I've been advocating for the board to take a more active role for these

01:44:52and related considerations.

01:44:54I think there's a question here about what's the right governance of our action plan going

01:44:57forward.

01:44:58So it's appalling to me that he would even consider attempting to be part of the solution

01:45:02when he's part of the problem.

01:45:04So Mr. Kim, one of Cleary's recommendations is for the FDIC to hold leadership accountable.

01:45:10So can you talk about why this recommendation is necessary at all levels for a true cultural

01:45:15change at the agency?

01:45:19We've set forth in the report our finding that these workplace conduct and culture issues

01:45:25have been longstanding and persistent.

01:45:27And as a result, we believed that the recommendation needed to include transformation of culture

01:45:35and structure beyond just improved trainings or policies.

01:45:42And as a result, that was our recommendation.

01:45:45Our recommendation is that the organization, including its leaders and managers, need to

01:45:51recognize the need for this transformation, cultural and structural.

01:45:57We did not take and do not take a view as to whether any particular leader or chair

01:46:04should or should not remain at this FDIC.

01:46:07That was not in our mandate, nor do we believe we have the authority to make such a decision

01:46:13or recommendation.

01:46:15On May 20th, Chairman Gruenberg said that he would resign from his role as chairman

01:46:20after President Biden and the Senate have nominated and confirmed his new successor.

01:46:25We've been talking about that today.

01:46:26So this is unacceptable.

01:46:28And a clear political decision by the Biden administration, Chairman Gruenberg, Cleary's

01:46:33report has shown that the employees of the FDIC have zero faith, zero, I repeat, in their

01:46:39current chairman.

01:46:40And Chairman Gruenberg's decision is insulting to those who his actions have directly affected.

01:46:46So Director McKernan, how does this hinder the FDIC from fulfilling its duties?

01:46:51And what particular, what particular challenges does this create for the FDIC in effectively

01:46:57overseeing and managing financial institutions?

01:47:00Congressman, the morale at the FDIC is bad.

01:47:05That's not good for our ability to execute on the mission.

01:47:07We have great staff.

01:47:08We're going to keep pushing forward, but we shouldn't create headwinds through that.

01:47:11I think also going forward, longer term, the state of affairs at the FDIC, if not fixed,

01:47:17are going to be a real problem for retention and recruitment of new staff.

01:47:20And that will be fatal to our ability to achieve our mission if we can't fix that.

01:47:24I'm a small business owner, and I know if your employees don't have faith in leadership

01:47:28and trust in it's not ever going to work.

01:47:31And you've got a real issue here.

01:47:33With that, I have a minute to go, Mr. Chairman, I'd yield my time back to you if you'd like

01:47:38I appreciate that.

01:47:40And Mr. Mr. McKernan, we were starting to explore some of those those changes.

01:47:47And do you do you believe I'll ask you the same question I asked Mr. Hsu, which is, do

01:47:52you believe that Mr. Gruenberg is the right man at the right time with the right ideas

01:47:57to be able to lead the FDIC into into a new place?

01:48:02As I said, I think we really need a fresh start and sooner rather than later.

01:48:07And does that mean waiting until I mean, it feels like a little like saying I'm resigning,

01:48:13but I'm actually not resigning is a little like a member of Congress saying, well, I'm

01:48:18not going to serve in Congress if the people who elect me don't elect me.

01:48:22Well, of course, that's there's there's a simple thing that this president could do,

01:48:28which is remove Mr. Gruenberg.

01:48:31And we could start on that fresh start, could we not?

01:48:34I take your point.

01:48:35I do think it is really ultimately a question for our elected leaders.

01:48:38But if I'm asked my focus on what's on the best interest of the agency, and I think that's

01:48:41clear.

01:48:42All right.

01:48:43Time has expired.

01:48:44Gentleman's time from Texas has expired.

01:48:45With that, the gentleman from California, Mr. Vargas, is recognized for five minutes.

01:48:49Thank you very much, Mr. Chair.

01:48:50First of all, I want to thank the chair.

01:48:52We did ask for a hearing, and he provided one.

01:48:55So I want to thank the chair and the ranking member so we could ask these questions.

01:48:58I appreciate it very much.

01:49:00At the beginning, Mr. Speaker, actually, you said culture starts at the top.

01:49:08I agree with that.

01:49:09Culture starts at the top.

01:49:11And as you said, values are set by our leaders.

01:49:15I think that that's correct.

01:49:17I take a look here at rule 17 under the quorum and debate, and it says members shall be confined

01:49:24to questions under debate, avoiding personality.

01:49:27It doesn't say that you can't talk about convictions, that you can't talk about court

01:49:32cases.

01:49:33In fact, you can.

01:49:34I don't see why you cannot.

01:49:35I think that that allows for it, Mr. Speaker.

01:49:38Well, I appreciate the upgrade, but it's Mr. Chairman, Mr. Speaker, and I'm happy to address

01:49:44that.

01:49:45There was no discussion of saying that.

01:49:46Right.

01:49:47No, no.

01:49:48The reason I say that is because, you know, another member said that this is one of the

01:49:52reasons that people hate Congress is because of the swampy move, Mr. Greenberg.

01:49:58Now, by the way, my dad, great guy, unfortunately passed away a few weeks before I joined Congress,

01:50:03taught me one thing.

01:50:04He says, never defend son, the indefensible.

01:50:06So I'm not going to defend Chairman Greenberg, because I think it's indefensible, personally.

01:50:10I, you know, I'm not going to defend him.

01:50:14But I will defend, obviously, the decisions that we're making here.

01:50:19And how do you defend others when you're talking about culture starts at the top, and

01:50:26then you say that people hate Washington because we're swampy?

01:50:30No, it's because we're hypocrites.

01:50:32Because we're hypocrites.

01:50:34When you say that culture starts at the top and you take a look at who's at the very top,

01:50:39you take a look at convictions, you take a look at court cases, and then you say, oh,

01:50:44that's fine, we're going to look away, that's fine.

01:50:47But this chairman, we're going to hold accountable, and we'll hold both accountable.

01:50:50I think we ought to, you know, I don't think Chairman Greenberg, by the way, I don't think

01:50:54he should be there personally either.

01:50:55But, you know, the hypocrisy that I hear on the other side really is stunning, just stunning

01:51:01on this issue.

01:51:03Because of the court cases.

01:51:04And it's not my, you know, it's not my decision, it's the decisions of jurors and judges that

01:51:09made those decisions.

01:51:10All that being said, I do think that there's a problem here, and obviously, we had, and

01:51:15I thank the work that you've done as attorneys, and I thank the work that you've done as board

01:51:20members.

01:51:21I think you've worked hard.

01:51:22Now, we did have, obviously, recommendations that were made in 2020, and they weren't fulfilled.

01:51:27I mean, those recommendations, why do we think that this time, because, again, we talk about

01:51:34people afraid of retaliation, why do we think it's going to work this time?

01:51:37Mr. Kim, I think I'll go to you, because you're the one that had up the investigation.

01:51:40Go ahead, sir.

01:51:42We did find that a number of the findings in the 2020 OIG report remained issues.

01:51:49And that is partly what led us to the finding that these are issues that have been longstanding

01:51:58or are deep-seated, which is why, based on the findings, we wanted to put in the report

01:52:04sufficient information so that the reader can get a flavor of what it is that we heard.

01:52:10And we did hear, on a regular basis, the fear of retaliation.

01:52:14And it was your testimony, I believe, that a lot of the people that came forward were

01:52:18women and underrepresented minorities.

01:52:20Is that your testimony continually?

01:52:22That's correct.

01:52:23Okay.

01:52:24And why do you think that that is the case?

01:52:28Because I think women and underrepresented minorities have been, at the FDIC and elsewhere,

01:52:38more susceptible to misconduct, as well as victims of a culture that is patriarchal

01:52:47or insular.

01:52:48Sort of the good old boys that was spoken about at the beginning?

01:52:51That is what we heard.

01:52:52And most of it was in the offices away from the Capitol, not from the Capitol, but from

01:52:57Washington?

01:52:59It was both.

01:53:01As we set forth in the report, we received reports from all of the divisions, all of

01:53:08the districts.

01:53:10But as we note in the report, some of the issues with respect to fiefdoms and the like

01:53:16was more prevalent in the field offices than in headquarters.

01:53:19Okay.

01:53:20Well, again, I have 30 seconds left.

01:53:22I want to thank you for your work.

01:53:23I do think we should move forward.

01:53:25I don't think that it's defensible to defend Chairman Gruenberg.

01:53:29I don't.

01:53:30I think that the things that were said at the beginning were absolutely true.

01:53:34Culture starts at the top, so does character.

01:53:38And I think we need to change there, and I wish that my colleagues on the other side

01:53:42would listen to their own words.

01:53:44Thank you very much.

01:53:45I yield back.

01:53:46The gentleman yields back.

01:53:47The gentleman from Ohio, Mr. Davidson, Chair of our Housing and Insurance Subcommittee,

01:53:52is recognized for five minutes.

01:53:53Thank you, Chairman.

01:53:54Thank you for our witnesses.

01:53:56Mr. McKernan, I thank you for the work to highlight some of these issues.

01:54:01In your opinion, can an effective top-to-bottom cultural change be made at FDIC while Martin

01:54:09Gruenberg is chairman?

01:54:10I don't think we can have real culture change until we have that fresh start.

01:54:14That's been my experience, whether it was in the military or in business, frankly, here.

01:54:20You can update the HR manual.

01:54:21You can write new standard operating procedures.

01:54:23You can train them all you want.

01:54:25Sometimes you just got to change the people.

01:54:28And it seems clear that we need to do that.

01:54:31Why is the delay?

01:54:33Director Hsu, why the delay?

01:54:35Why should we tolerate Gruenberg sticking around through the rest of the afternoon?

01:54:41So at the board, we're not delaying.

01:54:44We've taken steps already to hire an independent third-party expert, an independent monitor,

01:54:50and to restructure the reporting lines for incidents.

01:54:52Those are all actions that are required to reduce the fear of retaliation, to ensure

01:54:56that we've got the right outside expertise so we can make the changes that are necessary.

01:55:01So you're outsourcing the leadership challenge to some third party, and then you're going

01:55:04to put a director in to implement what the third party came up with?

01:55:09The purpose of engaging with the outside parties is to make sure that we got the best expertise

01:55:13from out—we have to do this differently.

01:55:15Why not just hire a good leader?

01:55:17We have to do this differently than in the past.

01:55:19We want to make sure that we've got the right plan and that we're implementing those steps

01:55:23immediately.

01:55:24It sounds to me like the plan is that we're going to come up with a committee that's designed

01:55:28to delay action while Gruenberg rides out the rest of the Biden administration and continues

01:55:34his time there.

01:55:36Mr. McCurran, how long has Director Gruenberg been at the FDIC?

01:55:4220 years, as I understand.

01:55:4420 years.

01:55:45How long has he been leading it?

01:55:4610 of the last 13.

01:55:4710 of the last 13 years he's been leading it.

01:55:50Do you think he's had anything to do with poisoning this culture?

01:55:54I think the chairman's ultimately accountable for the culture.

01:55:56Generally, that's the answer.

01:55:58The leader—everything that happens or fails to happen in an organization is ultimately

01:56:02the top leader's responsibility.

01:56:04That doesn't mean he's the one that did everything, but ultimately that's the duty of leadership.

01:56:09And anyone can find an excuse.

01:56:11It seems like Gruenberg's full of them.

01:56:13Leaders find a way.

01:56:14Director Hsu, do you think Gruenberg's going to find a way?

01:56:18I'm focused on what I can control.

01:56:20So if you give him a good outside, third-party outsource solution, you think he could follow

01:56:25it with any credibility?

01:56:27The purpose of having the outside expertise is to make sure that the agency is doing the

01:56:30best it can for the employees of the agency.

01:56:33What's the due date for that?

01:56:34Around January 21st, 2025?

01:56:36No, it's right now.

01:56:38We have to do these things right now.

01:56:39I know we do, but you're outsourcing it to some third party.

01:56:42Are they supposed to get back to you around January 21st?

01:56:44No, the hiring of the third party, both the expert and the monitor—

01:56:48that's currently in process right now.

01:56:50And we are also going to restructure the broken internal process that has led to retaliation.

01:56:55Well, it might take until January 21st to get rid of Director Gruenberg, but I'm pretty

01:57:00sure it'll be done right around that time frame, if not before.

01:57:05So Mr. McKernan, is there anything that we could do between now and January 21st to facilitate

01:57:13Director Gruenberg's departure at the FDIC?

01:57:17I don't know that I can speak to that, but I think that it's important that Congress

01:57:21continue to exercise its oversight role to hold us accountable, including the board,

01:57:25for making real, actionable steps to get culture change moving.

01:57:28Well, obviously the President of the United States could fire him.

01:57:31That'd be great.

01:57:32No leadership coming from there.

01:57:35But Congress has the power of the purse.

01:57:37I mean, we're only funded until September 30th.

01:57:40In theory, we could eliminate funding for Director Gruenberg's position beginning

01:57:46October 1st of this year.

01:57:48We have an opportunity coming up in the appropriations process.

01:57:50We have a Holman rule that would facilitate just such an action directed at Gruenberg.

01:57:56Does anyone believe that would be appropriate to provide congressional accountability for

01:58:01Director Gruenberg?

01:58:03Do you think we should keep him in place, or do you think we should continue to pay

01:58:09Director Gruenberg?

01:58:10We're the ones that provide the funding for his paycheck.

01:58:12Should we keep him on the United States payroll?

01:58:17I mean, I was really encouraged to hear Mr. Varga talk about not defending the indefensible.

01:58:23But if we fund his paycheck into the next fiscal year, well, we're defending the indefensible.

01:58:29We shouldn't provide a dime to Director Gruenberg.

01:58:32So I hope my colleagues will defund his payroll.

01:58:36And I hope it's a moot point, because Joe Biden could fire him this afternoon, and that'd

01:58:39be the appropriate action.

01:58:41Anywhere else, anyone doing these kinds of things would be walked out with a cardboard

01:58:45box that afternoon.

01:58:47And I hope that becomes norm within the FDIC to not tolerate these kinds of things, whether

01:58:53it's of the employees or the subordinate leaders that make up the chain of command.

01:58:58We need to fix this culture, and Congress can do that by holding Gruenberg accountable

01:59:02with appropriations.

01:59:03I yield back.

01:59:04The gentleman's time has expired.

01:59:05With that, the gentlewoman from Texas, Ms. Garcia, is recognized for five minutes.

01:59:10Thank you so much, and thank you to the witnesses for being here.

01:59:14First, I want to start with Ms. — you know, now that I'm so far away from you, I can't

01:59:20read your name plate, because my eyes are not as good as it is when I sit up front.

01:59:28But you said something that caught my ear at the beginning.

01:59:33You said that this has gone on for far too long, I think is your quote, and then you

01:59:40went further and said that this was a longstanding and deeply ingrained.

01:59:47So if it goes back to the 80s, have you been able to age any of the 500 complaints?

01:59:53Like how many were in the 80s and the 90s and the 2000, 2010s, 2020s, so that we can

02:00:00get a better idea of how ingrained it is?

02:00:03To give a better idea of our findings, we included in our report what we thought was

02:00:09necessary to understand our findings and support our recommendations.

02:00:14The question is, did you age the findings?

02:00:18Let me ask you this, was there more in the 20s or more prior to 2000, or was there more

02:00:27in the 80s?

02:00:29So in the representative examples, the nearly 50 representative examples we included in

02:00:33the report, where we had dates, most—

02:00:37»» I know that you're, you know, a lot of the samples on a lot of pages are like this.

02:00:43They're redacted.

02:00:44Okay.

02:00:45There's redactions in probably 5, 6, 10 pages.

02:00:50So it says examples on page A4, but I have like two pages of redactions.

02:00:58»» Right.

02:00:59»» So what I was saying was that—

02:01:00»» Let me give you an idea, ma'am.

02:01:01Simple question.

02:01:02Did you age the allegations?

02:01:04It really is a yes or no.

02:01:07»» We aged allegations and most of the examples in the appendix that you were just referring

02:01:14to where there are dates, most of those are from within the past five years.

02:01:18»» Five years.

02:01:19Okay.

02:01:20Well, that's good to know.

02:01:21It struck me that the OIG report did make a recommendation regarding this back in 2020,

02:01:33suggested that the FDIC develop a more formalized strategy to promote a harassment-free workplace.

02:01:40In response, the agency wrote, and again, this is 2020, the FDIC disagrees that development

02:01:48of a new strategy is required because the FDIC currently has a robust, multifaceted

02:01:53strategy in place designed to promote a culture of diversity and inclusivity in an environment

02:01:58in which harassment is not tolerated.

02:02:03So they thought everything was hunky-dory apparently in 2020.

02:02:07You recall who the chair was then?

02:02:10»» The chair in 2020 was Chair McWilliams.

02:02:12»» All right.

02:02:13So that was not the Mr. Grunberg.

02:02:17»» Correct, it was not Mr. Grunberg who was the chair then.

02:02:23»» So when he came in in 2020, the following McWilliams, he saw the OIG report that said,

02:02:31we disagree.

02:02:32We're doing fine.

02:02:33We don't need a new strategy.

02:02:36»» So that sort of kind of caught my attention because there seems to be so much focus, and

02:02:46well, it should be, on the current chairman, when in fact, there's been other previous

02:02:55chairmen, both Democrat and Republican, appointed by both Democrat and Republican presidents.

02:03:03So it is a problem for the agency, and it's something that needs to be worked on.

02:03:09But it seems like the agency has resisted some of this.

02:03:12Mr. McCurrin, you've been on now for how many years?

02:03:15»» About a year and a half.

02:03:17»» All right.

02:03:18So I know you've said even today that the board bears responsibility and that the board

02:03:24should be more involved.

02:03:26So in your one and a half years, what have you done or what have you initiated to take

02:03:32care of some of these issues that you yourself say we need to take steps to address these

02:03:38problems?

02:03:39So what steps have you taken, sir?

02:03:41»» So when the reports came out in the press in November, I'd been there about, I guess,

02:03:45ten months.

02:03:46And what I did was championed an independent review.

02:03:49We initially had a review that was going to be overseen by the chairman and staff.

02:03:53That review was candidly very narrow in scope, with a very limited budget.

02:03:58It was not a real review.

02:03:59It was not a top-to-bottom review.

02:04:01I found that very objectionable, worked very hard on the board to get us to do a real review,

02:04:06an independent review.

02:04:07Director Hsu was very constructive to that end, and now we're here today talking about

02:04:10that review.

02:04:11»» So anything else that you've done that you can share to us to?

02:04:15»» Currently, we're having a relatively contentious debate on the board about exactly

02:04:19what the board's role is going forward.

02:04:21I'm one vote among five.

02:04:23I think we need to really reconsider how the board approaches the oversight of the action

02:04:26plan.

02:04:27»» Thank you.

02:04:28Chairman, I have a unanimous consent.

02:04:30»» Without objection.

02:04:31»» Unanimous consent to enter the record an article from the Bloomberg, Biden is poised

02:04:38to pick Goldsmith Romero to lead overhaul at FDIC.

02:04:42I ask for unanimous consent.

02:04:44»» Without objection.

02:04:45»» Thank you.

02:04:46»» The gentleman from West Virginia, Mr. Mooney, is now recognized for five minutes.

02:04:51»» In West Virginia, we have a lot of small banks.

02:04:53I met with some of them last year after the Silicon Valley Bank was given the systemic

02:04:57risk exception.

02:04:59Most of them were of the view that no banks in West Virginia would have been given that

02:05:02exception.

02:05:03It's my first chance to speak to folks from FDIC since then, so my questions are really

02:05:08directed at Mr. McKernan and Mr. Hsu about the failure of Silicon Valley Bank.

02:05:14Silicon Valley Bank was a comparatively smaller financial institution, and many policy makers

02:05:18and politicians were skeptical about invoking the systemic risk exception for Silicon Valley

02:05:25Bank, while others, particularly those with large ties to interest in the Silicon Valley,

02:05:30supported making the bank's account holders completely whole.

02:05:34Would you say, isn't it true, that the Silicon Valley Bank was not an obvious candidate for

02:05:38the invocation of the systemic risk exception?

02:05:41Mr. Hsu?

02:05:45»» The board, the FDIC board decided unanimously to invoke the systemic risk exception at that

02:05:50time based on a lot of analysis and discussion.

02:05:55»» I would certainly agree, Congressman, that it was not an obvious candidate.

02:05:58That was probably one of the harder decisions I've had to make in my life.

02:06:01And candidly, I wouldn't begrudge anyone who wanted to criticize me for it, because depending

02:06:05on what side of the bed I wake up on, I sometimes wonder if I made the right decision.

02:06:08»» I appreciate that.

02:06:09I know we make the laws here and you do your best to implement them, and a lot of gray

02:06:14areas in that.

02:06:15But let me ask a follow-up question.

02:06:17Isn't it also true that as a part of the analysis regarding the invocation of the systemic

02:06:21risk exception for Silicon Valley Bank, that an important concern relayed to the FDIC was,

02:06:27a special decision was made, that it would be important to prevent money from going to

02:06:31Chinese interests?

02:06:33So like what did the FDIC do to analyze whether the FDIC would be funding Chinese interests

02:06:38and how the FDIC go about preventing it?

02:06:41Mr. McKernan?

02:06:42»» Congressman, I can't speak to that.

02:06:44I'm happy to take that question back, but that was certainly not something I was looking

02:06:48in at the board.

02:06:49I was looking at the time.

02:06:50What was central to my decision making is we had also signature that same weekend.

02:06:54And although it was not obvious to others at the time, First Republic was right there

02:06:57as well.

02:06:58I put the three together was really what got me to yes.

02:07:02»» Okay.

02:07:03Sue, any thoughts on that?

02:07:04»» I'd have to get back to you as to your question.

02:07:07»» All right.

02:07:08I've also then been alerted to the fact that the FDIC chose to insure certain foreign Eurodollar

02:07:14sweep accounts for a failed bank, which would be in violation of 12 CFR section 36.8, which

02:07:20expressly states that the insurability of funds associated with sweep accounts maintained

02:07:25by foreign branches is to be determined as of the end of business status of the funds.

02:07:31Instead, FDIC chose to interrupt the cycle and pay out the accounts as if the money was

02:07:35stationary in the United States.

02:07:37Why did the FDIC bend the rules on that?

02:07:39»» Congressman, that's another question I'll have to take back.

02:07:42»» Okay.

02:07:44I have time for one more question, changing back to the earlier discussion.

02:07:50If Mr. Gruenberg were to step down and the current vice chairman becomes the acting chairman,

02:07:56would the FDIC continue to function and carry out its mission?

02:07:59Yes or no?

02:08:00»» Absolutely.

02:08:01The FDIC has functioned without a full board for quite some time.

02:08:05»» Anybody else want to opine on that one?

02:08:11»» Well, let's just say the bylaws clearly state that there's a solution in place.

02:08:17If Mr. Gruenberg were to step down and resign today, he's already told the staff they need

02:08:21to prepare for him to stay through the end of the year.

02:08:24The staff went through, went from hoping for a fresh start to now being stressed about

02:08:30the future of the agency, defeated and unable to adequately do their jobs.

02:08:34So that would be a good option, I would say.

02:08:38Mr. Chairman, that's really it for my questions.

02:08:40I yield back the balance of my time.

02:08:42»» The gentleman yields back.

02:08:44The gentleman from Massachusetts, Ms. Presley, is now recognized for five minutes.

02:08:49»» Thank you, Mr. Chair.

02:08:50And thank you all for being here.

02:08:51First I want to say I'm encouraged to see a more representative table today.

02:08:55I'm glad that there's a woman at this table and that there's diverse representation at

02:08:59this table given the experiences both of racial discrimination, microaggression, hostilities,

02:09:05and also sexual harassment.

02:09:07I remain deeply concerned about accountability and recourse following the inaction to address

02:09:10essential workers' rights at the FDIC.

02:09:13I did not parse words when Mr. Gruenberg was before this committee and I certainly won't

02:09:17today.

02:09:18I appreciate that he has taken the appropriate step of tendering his resignation effective

02:09:22immediately following Senate confirmation of his successor.

02:09:26Let me be clear, those on the other side of the aisle do not come to this conversation

02:09:30in good faith.

02:09:31They see an opportunity to gut critical federal regulatory work and they are going after it.

02:09:37That aside, let me be clear.

02:09:40The FDIC must prioritize recourse for workers and accountability for wrongdoers.

02:09:46Mr. Kim, based on this report, it's just not clear to me who at the FDIC directly contributed

02:09:53to the recommendation section.

02:09:56Sorry, who directly contributed to the recommendation section?

02:10:01Yes.

02:10:02The report was entirely the work of the Cleary Gottlieb team and we both reached our factual

02:10:10findings and the analyses and developed the recommendations.

02:10:13Okay, let me just unpack that.

02:10:15I'll be a little bit more precise.

02:10:17What role did employees, current or former, who were actually impacted by these adverse

02:10:23experiences at the FDIC play in contributing to the recommendations?

02:10:29Thank you for that clarification.

02:10:30Of course, the entirety of our report are based on facts that we learned from speaking

02:10:38with people at the FDIC, current and former, as well as the documents.

02:10:42We came in with no personal knowledge of what was going on at the FDIC, which is why we

02:10:50started in our remarks today to emphasize the emotion that we heard from people who

02:10:55were reporting.

02:10:56The entirety of the findings and the recommendations are based on what we learned from the FDIC.

02:11:04In terms of the recommendations, there were many people within the FDIC, particularly

02:11:10those who were part of employee resource groups who had very good ideas about what to do,

02:11:17and we understood that they had contributed in part to the development of the Action Plan.

02:11:24In our interviews with them, we also asked them, those who had experienced these issues,

02:11:31those who were part of the process, asked them, how do you think this could be improved?

02:11:36And a lot of that was reflected in our recommendations as well.

02:11:38Okay, I have some other questions I need to get to, but that is so critically important.

02:11:44It's essential to healing for those who were adversely impacted, and I'm just a firm believer

02:11:50that those closest to the pain should be closest to the power driving and informing the policymaking,

02:11:55and that is certainly true for survivor's justice, so I hope that they will continue

02:11:59to be actively engaged, and their input solicited is so important that you're partnering with

02:12:06them because they're experts in addressing sexual harassment and protecting workers' rights.

02:12:11Mr. Kim, in the report, it states that FDIC did not concur with two of OIG's recommendations

02:12:17on proportionate and consistent disciplinary action for substantiated harassment.

02:12:22What were two recommendations, and why did the FDIC oppose them?

02:12:29We understand that after the OIG report, Office of the Inspector General report in 2020, that

02:12:36the FDIC took issue with- I'm sorry, Mr. Kim, I'm running out of time,

02:12:39so could you just tell me- We don't know exactly on what basis the FDIC

02:12:44resisted those.

02:12:45Okay.

02:12:46All right.

02:12:47Well, no one, and I repeat, no one should ever be subjected to sexual harassment in

02:12:50the workplace.

02:12:51This is an issue that affects people of all walks of life in workplaces throughout America,

02:12:56and that is why I will be introducing the Be Heard in the Workplace Act.

02:13:00This is anti-harassment, survivor-focused legislation that will codify critical changes

02:13:05to prevent workplace harassment and discrimination and enable workers to seek accountability

02:13:10and justice.

02:13:11It was drafted in close partnership with survivors, civil rights lawyers, and workers' rights

02:13:16advocates.

02:13:17This bill prohibits mandatory arbitration and nondisclosure agreements from covering

02:13:22up harassment.

02:13:23It expands the jurisdiction of the Equal Employment Opportunity Commission, and it outlines a

02:13:28clear legal pathway for survivors to seek legal redress through the court system.

02:13:34The Be Heard in the Workplace Act is essential to protecting workers and ensuring accountability

02:13:38for discrimination, harassment, and abuse.

02:13:41I want every worker to know that we don't just care about your labor.

02:13:46We give a damn about your lives.

02:13:49And every worker should be able to do their job with safety, dignity, and respect.

02:13:54Thank you.

02:13:55The gentleman yields back.

02:13:58The gentleman from Tennessee, Mr. Rose, is now recognized for five minutes.

02:14:02I want to thank Chairman McHenry and Ranking Member Waters for holding the hearing, and

02:14:05thank you to our witnesses for being with us today.

02:14:09Director Suh, as the founder and operator of a business, I know just how important values

02:14:14are as a guiding beacon to employees.

02:14:18At the Federal Deposit Insurance Corporation, you have the stated values of integrity, competence,

02:14:25teamwork, effectiveness, accountability, and fairness.

02:14:29I'm sure your nod indicates you're aware of that.

02:14:32Director Suh, the FDIC describes the value of integrity as adhering to the highest ethical

02:14:38and professional standards.

02:14:41Based on the FDIC definition of integrity, does Chair Gruenberg yelling at his staff

02:14:46meet the standard of integrity, yes or no?

02:14:51Any misconduct does not meet that standard.

02:14:53I think you're right.

02:14:54Director Suh, the FDIC describes the value of teamwork as communicating and collaborating

02:14:59effectively with one another.

02:15:02Based on the FDIC definition of teamwork, does Chair Gruenberg's staff being afraid

02:15:08to give him bad news sound like he meets the value of teamwork, yes or no?

02:15:14Fear is not a part of teamwork.

02:15:17Director Suh, the FDIC describes the value of fairness as respecting individual viewpoints

02:15:23and treating others with dignity and trust.

02:15:26Based on the FDIC definition of fairness, does your staff not having trust in the chair

02:15:33to write to him with concerns like they did with Chair Baer or McWilliams indicate that

02:15:39he meets the value, yes or no?

02:15:41Trust is critical.

02:15:42We need to work extremely hard to rebuild trust with the staff at the FDIC.

02:15:47So let's be honest, Director Suh.

02:15:49Chair Gruenberg does not embody the values of the FDIC.

02:15:54Employees are working in fear at the agency as we speak.

02:16:00I grew up on a farm and early in my life I learned from my grandmother that when the

02:16:04fox is in the hen house, you have to get it out.

02:16:09You don't leave it there for months and months and expect not to suffer continual damage.

02:16:16So while I can appreciate Chair Gruenberg's decision to resign, frankly it needs to happen

02:16:23now and having it happen months from now puts the country and certainly the institution

02:16:32of the FDIC at risk.

02:16:35Director McKernan, as you consider the values of integrity, competence, teamwork, effectiveness,

02:16:40accountability and fairness that are supposed to guide the Federal Deposit Insurance Corporation

02:16:46Did your review of the Cleary Gottlieb report and personal experience at the FDIC find a

02:16:53culture reflective of those values?

02:16:55No, you can't read the report and think that our culture is consistent with the values.

02:17:01And Mr. Kim, the report outlines that employees do not have trust in the reporting process

02:17:07even though the FDIC has over five offices for employees to make or to take their reports.

02:17:15What were you hearing from employees that drew Cleary to that conclusion?

02:17:20We were hearing both that there was confusion in the reporting processes, that there were

02:17:26a number of different places that they could report, but there was not a uniform understanding

02:17:31of which reporting channel was for what.

02:17:34And then there was concern expressed to us that some of the reviews following reports

02:17:42were conducted by groups that had management's interests more in mind than the complainants

02:17:49and raised credibility questions about those reviews.

02:17:54So I can't help but hear what I've heard from each of you today and not reflect back to

02:18:00January 20th, 2021, when President Biden said that everyone is entitled to be treated with

02:18:09decency and dignity.

02:18:12I agree with the President, that's true.

02:18:15He went on to say that you treat another colleague with disrespect, talk down to someone, I promise

02:18:22you I will fire you on the spot.

02:18:25On the spot, no ifs or buts.

02:18:29It sounds to me like that admonition is not being taken to heart with respect to Chair

02:18:34Gruenberg and I would suggest that Chair Gruenberg should reflect on that and I hope the administration

02:18:41will reflect on that very clear admonition and I trust that my colleagues on the other

02:18:47side understand the clarity, at least in the words of President Biden, and I think it's

02:18:55time for that clarity to be implemented.

02:18:58With that, Mr. Chairman, I yield back.

02:19:05Gentleman from Tennessee yields back.

02:19:07Gentlewoman from Michigan, Ms. Tlaib, is now recognized for five minutes.

02:19:10Thank you, Mr. Chair.

02:19:12You know, the question is how can you address a problem that you can't see?

02:19:16So one longstanding issue, and I know it's, I feel like maybe some of my colleagues have

02:19:20brought it up, is documented in both the 2020 Inspector General report and the Clery report

02:19:26was the lack of centralized database tracking and documenting harassment claims and the

02:19:31investigations at the FDIC, and before I think 2020, the internal records were maintained

02:19:37in like a hard copy file system held by specific individuals there and stored electronically

02:19:44in FDICs, what they call the Corporate Human Resources Information System, CRISP.

02:19:49So from 2008 to 2021, the CRISP system documented only two cases, from 2008 to 2021, the CRISP

02:20:01system documented only two cases of sexual harassment and just seven cases of harassment.

02:20:08Mr. Kim and Ms. Mayno, given that 2009 Office of Inspector General survey found that 8%

02:20:17of FDIC respondents had experienced sexual harassment from 2015 to 2019, is there any

02:20:24reason to believe that CRISP database records from 2008 to 2021 were complete or accurate?

02:20:30»» There's no reason to believe that the CRISP database was complete.

02:20:38»» Okay.

02:20:40In terms of tracking workplace misconduct, how would you characterize the FDIC's data

02:20:45collection and management practices for both of you?

02:20:50»» Currently?

02:20:51»» Yes.

02:20:53»» We understand that the group within the Human Resources Division at the FDIC within

02:21:00the Division of Administration has taken steps more recently to improve centralized

02:21:06and systematic record keeping.

02:21:08In the past year, we understand...

02:21:10»» Is this based on their action plan?

02:21:12Is this...

02:21:13»» No, this actually predates the action plan.

02:21:17We understand that in the past year, that group specifically has introduced a system

02:21:22that now tracks different types of interpersonal misconduct so that it allows the FDIC to

02:21:29identify sexual harassment, for example, compared to hostile work environment and

02:21:34also identifies whether misconduct falls under the FDIC's anti-harassment program, which

02:21:41the records before did not do.

02:21:44»» So...

02:21:45And I'm not rolling my eyes at you.

02:21:46It's just really bizarre that they would do it.

02:21:48So FDIC's December 2023 action plan, one of the stated goals was to, quote, enhance the

02:21:56centralized tracking system for monitoring sexual harassment claims.

02:22:00The projected completion of this was February 29th of this year.

02:22:05So either Mr. McKernan or Mr. Hsu, has this action item been successfully completed?

02:22:10If so, what specific steps were taken to improve the FDIC's ability to track misconduct?

02:22:19»» I'm not aware of whether it's actually completed.

02:22:21And even if we're saying it's completed, I won't believe it until I see some independent

02:22:24validation that it's completed.

02:22:26»» I agree with Director McKernan.

02:22:29The completion of the action plan for that particular database, it's only going to work

02:22:33if people feel safe.

02:22:34»» I see.

02:22:35There's no trust.

02:22:36»» That's the fundamental thing that needs to be addressed.

02:22:39»» Yeah, I actually talked to him about that.

02:22:42People have lost a lot of trust.

02:22:43So staying on the topic of collecting and tracking information, 2021 Office of Inspector

02:22:48General Report found that FDIC does not have a systematic process for collecting, right?

02:22:53Or analyzing employee retention data, for instance.

02:22:57According to the Clery Report, FDIC revised its retention tracking process in 2023.

02:23:02So either Mr. Hsu or Mr. McKernan, what is FDIC's current process tracking retention

02:23:07records, employee retention records?

02:23:09Anybody know?

02:23:10»» My understanding is that there are projects to improve these.

02:23:13Again, I think as board members, our focus is we really need to change both structure

02:23:19and culture.

02:23:20Because I know when people start leaving, right, or something's wrong, like you know

02:23:25how you know?

02:23:26So I'm trying to figure out what percentage of employees who leave the FDIC complete exit

02:23:31surveys, what are we doing there?

02:23:33Because that can always help with indicating whether or not there's a pattern of sexual

02:23:38harassment, there is something wrong, there's getting to the root cause of turnover, whatever

02:23:43you want to call it.

02:23:44Again, we're talking about retention and how important exit interviews are.

02:23:48I believe that's been identified in the report as something that needs to be improved as

02:23:51part of the action plan in concert with these other steps.

02:23:55They all have to move together.

02:23:56»» But there are doing exit interviews right now.

02:23:58»» I have to get back to you.

02:23:59We have to get back to you on that.

02:24:00»» You don't do exit interviews right now?

02:24:02»» I don't want to misspeak.

02:24:03I want to make sure we get back to you.

02:24:05»» That's really important.

02:24:07And especially in such a large organization right now.

02:24:13Thank you, Mr. Chair.

02:24:14I yield.

02:24:15»» The gentlewoman yields back.

02:24:17»» I now recognize myself for five minutes.

02:24:19Thank you to all of our witnesses for being here today.

02:24:21The independent report from Clearly Gottlieb on the FDIC's workplace culture and the conduct

02:24:26of Chairman Martin Gruenberg are disturbing.

02:24:30The report makes a number of recommendations for the future of the FDIC.

02:24:33Let's review what some of those are.

02:24:35Number one, calls for the access to the chairperson.

02:24:38This recommendation would ensure that the mental health resources developed as a result

02:24:43of the recommendations would have an audience with the chair and other executives in order

02:24:47to make those cultural changes.

02:24:50Chairman Gruenberg is not just a symptom of the culture, he has become so ingrained in

02:24:55the culture that it's indistinguishable from his personal leadership.

02:24:59You can't shake up the order of things when you are the ultimate symbol of the old regime.

02:25:06Number two, a recommendation calls for a 360 review of all leadership to ensure accountability.

02:25:13Let's take a look at Chairman Gruenberg's history to get a sense of how he might receive

02:25:17the constructive feedback resulting from this review.

02:25:21In the report, one executive stated that Gruenberg's actions have the effect of chilling open conversations.

02:25:28Another said that there is, quote, a great reluctance to deliver bad news to Marty Gruenberg,

02:25:34end quote.

02:25:35In November 2020, when overseeing a bank acquisition, the officers of the acquiring bank did not

02:25:41wear masks to a meeting because the state where the meeting took place did not have

02:25:45a mask mandate at the time.

02:25:47Chairman Gruenberg, quote, unquote, lost it when he heard the bankers did not wear masks

02:25:51and he took his rage out on his own staff.

02:25:55It got so bad that one employee was the target of this behavior and said, and I quote, I

02:26:00might cry, I want to quit, end quote.

02:26:03Finally, when confronted with the fallout from the Wall Street Journal story about Gruenberg's

02:26:07unacceptable conduct, the chairman refused to believe the story's descriptions of his

02:26:12own behavior, prompting one executive to leave the room in outrage.

02:26:17Given this pattern of behavior, can we really expect Chairman Gruenberg to faithfully implement

02:26:23these cultural changes, particularly ones that would require his personal buy-in as

02:26:28chairman?

02:26:29Some of my colleagues have already brought up an issue I'd like to focus more on.

02:26:32The prospects of a quick Senate confirmation process.

02:26:36We all know the Senate does not like to move quickly and I would expect nothing different

02:26:40in this case.

02:26:41Chairman Gruenberg has vowed to remain at his post and told employees to prepare for

02:26:45him to stay through the end of the year.

02:26:48We're talking about someone who has served as an acting chairman three times over the

02:26:51course of his career.

02:26:53A large chunk of his career has been spent with interim titles.

02:26:57Chairman Gruenberg is still the FDIC because of his refusal to leave at the end of his

02:27:02last chairmanship.

02:27:04Director Hsu, how do you feel that Chairman Gruenberg is the correct person to implement

02:27:08the changes recommended in this report in the long term?

02:27:11Thank you for the question.

02:27:14I'm focused on what I can control.

02:27:16What I can control are the actions of the board.

02:27:19But I'm asking you for your opinion.

02:27:21Do you think that he's the correct person to do this?

02:27:24Again, I'm focused on what I can control.

02:27:26So I'm really focused on trying to get in place the cultural and structural transformation.

02:27:30Director Hsu, you're not responding to my question.

02:27:32Let's go to my next question.

02:27:33Are you comfortable with Chairman Gruenberg staying in his post on an interim basis?

02:27:37Again, I'm focused on these actions.

02:27:39Are you comfortable?

02:27:41As long as he is focused on delivering, and he delivers on the comments and on the commitments

02:27:46to take actions, that's what's really, really critical.

02:27:49I'm open.

02:27:50I will work with whoever the chair is, but that's really important is to focus on those

02:27:53actions.

02:27:54Director Hsu, as we both know, the Senate confirmation process could take a long time.

02:27:58All the while, the FDIC employees are being asked to wait for leadership required to make

02:28:03this cultural transformation.

02:28:05How long do you think they have to wait?

02:28:08They're not going to wait.

02:28:09We are going to take action immediately.

02:28:10We are taking action on critical parts.

02:28:11So you're confident that he can do this, that Mr. Gruenberg can do this?

02:28:15You said they don't have to wait.

02:28:17He's still there.

02:28:18We are taking action.

02:28:19Okay.

02:28:20We are taking action.

02:28:21Does that mean you're comfortable with him doing this job?

02:28:24I can control what I can control.

02:28:26We are taking action on the expert, on the monitor, on standing up a new structure so

02:28:30that people don't have fear of retaliation.

02:28:32Those are the things I'm focused on.

02:28:33There are thousands of employees of the FDIC that are banking on this changing, and we've

02:28:40got the same person at the top that has not demonstrated a willingness to tackle this

02:28:45problem.

02:28:46In fact, people are afraid to go to him and even talk about it.

02:28:49So I express the lack of confidence that I have as a member of this committee in seeing

02:28:55things change.

02:28:56Thank you.

02:28:57I yield back.

02:28:58The gentleman from Wisconsin, Mr. Stile, who is also the chair of the House Administration

02:29:04Committee is now recognized for five minutes.

02:29:06Thank you very much, Mr. Chairman.

02:29:08Mr. Hsu, after the Wall Street Journal published its reports in November, Chairman Gruenberg

02:29:13announced he had already hired Baker Hostetler to conduct a third-party review.

02:29:19Then a week later, the FDIC Board of Directors established a special review committee to

02:29:24oversee a third-party review.

02:29:27Why did the board believe it was necessary to create a special committee and hire an

02:29:31outside law firm to conduct the review?

02:29:34The board unanimously voted to create the special review committee to ensure that there

02:29:38is independence and credibility with regard to that review.

02:29:42Would there be a concern that there would be a lack of credibility or independence if

02:29:45that review would have been selected by Mr. Gruenberg?

02:29:50I think that's implied within that resolution, yes.

02:29:54Let me jump to you, Mr. McKinnon, if I can.

02:29:57From my understanding, Baker Hostetler is already investigating the FDIC when Cleary

02:30:00Gottlieb was chosen, as just discussed.

02:30:03Whose decision was it to scrap Baker Hostetler's investigation?

02:30:08Special review committee made the decision to go with Cleary instead of Baker.

02:30:11Is the special review committee not the full FDIC board?

02:30:14That's right.

02:30:15Just Director Hsu and I.

02:30:16Could you also comment again and see if you agree here with Mr. Hsu as to why Cleary Gottlieb

02:30:20was chosen instead of Baker Hostetler?

02:30:23The way I looked at it is we had to have an independent review, not a chairman-driven

02:30:28or staff-driven review.

02:30:29You can't investigate yourself.

02:30:30You have to have someone from the outside, the best we've got are independent directors.

02:30:34Also when you looked at the terms of the Baker engagement, it raised real questions around

02:30:39the independence.

02:30:40It was very narrow in scope.

02:30:41It was very limited in budget.

02:30:43I thought that was part of the reason we made a strong case for a separate committee of

02:30:46the board to lead the investigation.

02:30:48Thank you very much.

02:30:49Back to you, Mr. Hsu, if I can.

02:30:51There's a long history of incidents involving Chairman Gruenberg's temper at the FDIC predating

02:30:56obviously the Wall Street Journal reporting.

02:30:59Were you aware of the internal FDIC investigation in 2008 into Gruenberg's behavior before the

02:31:06Wall Street Journal articles appeared?

02:31:09No.

02:31:10Was there, you were not formally aware?

02:31:12You had no knowledge that any review had been conducted?

02:31:17No, no.

02:31:19I was not aware of either formally or informally.

02:31:22So there wasn't any casual conversation at the workplace or on the water cooler that

02:31:26this review might be ongoing?

02:31:29I was not aware.

02:31:30You're not aware.

02:31:31Mr. Director McKinnon, if I can come back to you, were you aware?

02:31:34Just to make sure I understand the question, was I aware of the 2008 investigation?

02:31:38Prior to the Wall Street Journal article.

02:31:39Yeah, I had heard rumors about it.

02:31:41And so you had heard rumors.

02:31:42Did you have full evidence?

02:31:44Walk me through what that looked like to you.

02:31:46So, scratching back, how did I know and what did I know then?

02:31:50It was just casual conversation amongst employees of the FDIC that this review by a supposed,

02:31:56we can have the discussion as to the independence of the law firm, but a law firm review of

02:32:00the behavior of the chairman.

02:32:01Was that just water cooler talk around the FDIC?

02:32:03There is a lot of open secrets, as you know, in D.C. and this was one of those, that there

02:32:06had been an issue in 2008 and also an investigation.

02:32:10And you would say was it widely known at the FDIC?

02:32:14At the FDIC, that I can't speak to.

02:32:15I don't know.

02:32:17Where was it widely known?

02:32:18Where would you have thought that this would have been a casual conversation two individuals

02:32:21might have had?

02:32:22I was in the, I was a Senate staffer at the time and I think folks knew then.

02:32:27So, Senate staffers who were involved in the broader, probably, Senate Banking Committee

02:32:31then would have had general knowledge that this was ongoing.

02:32:34That there was a, I was speaking to the fact of the investigation.

02:32:38That an investigation was ongoing.

02:32:39Oh, no, no.

02:32:40I'm sorry.

02:32:41That there had been an investigation.

02:32:42That there had been an investigation, but not that the Baker Hosteller was conducting

02:32:45a review.

02:32:46Oh, I'm sorry.

02:32:47No, the Baker then came out of the Wall Street Journal reporting.

02:32:49So you did not, so great.

02:32:51So this is good that we're diving into it.

02:32:53So you did not have knowledge that the Baker Hosteller review was ongoing until you read

02:32:57about it in the Wall Street Journal?

02:32:58Oh, that's right.

02:32:59Where did I learn?

02:33:00I don't remember where I learned about the Baker.

02:33:01I think it was actually at the hearings immediately after the Wall Street Journal.

02:33:06But after the Wall Street Journal reporting, it was not part of a casual conversation you

02:33:09had with people.

02:33:10Right.

02:33:11You had heard the casual conversation.

02:33:12There were problems at the FDIC.

02:33:13And that was, I think, reasonably well known, and it has now been fully exposed to the level

02:33:17that it was.

02:33:18That's right.

02:33:19But you did, but the Baker Hosteller review, you were unaware of.

02:33:22It was not brought to the board's attention, which is a problem, because this, the board

02:33:25is supposed to act on major matters, instead the chairman retained a firm to do an investigation,

02:33:30which would have attracted a lot of publicity without alerting the board.

02:33:34Thank you.

02:33:35In my limited time, I just think it's so important here that Chairman Gruenberg should resign.

02:33:38He should have never been involved in the initial review with a third party for the

02:33:41exact reasons that you identified for us here today is noted and is noted by Mr. Rose

02:33:48re-quoting President Biden.

02:33:50He's saying he has no if, ands, or buts about whether or not someone engaged in this action

02:33:55should be terminated.

02:33:57He should be terminated.

02:33:58He engaged in the action, and to me, it's pretty clear as to what's going on.

02:34:03The administration's concerned about the policies, and they're willing to put their agenda ahead

02:34:08of protecting people.

02:34:10Mr. Chairman, I yield back.

02:34:12Gentleman from Wisconsin yields back.

02:34:14The gentleman from Pennsylvania, Mr. Muser, is now recognized for five minutes.

02:34:17Thank you, Mr. Chairman.

02:34:19So Mr. Hsu, who has been fired or put on leave at the FDIC or separated from employees that

02:34:30they allegedly have been abusing and harassing?

02:34:36My understanding is that there have been four individuals who have been separated from

02:34:40the agency.

02:34:41Okay.

02:34:42And you support that?

02:34:45I have some indirect knowledge of that.

02:34:47I don't have direct.

02:34:48I was not directly involved with those things.

02:34:51And what they did apparently was more serious than any accountability of Mr. Gruenberg and

02:34:59your view?

02:35:00I don't think I'm at liberty to talk about the specifics around that, but what I understand

02:35:03is that there have been four separations based on—

02:35:04Why not?

02:35:06Why not?

02:35:07I think there are personnel—there are protections around privacy and personal protection.

02:35:11You're doing a lot of protecting, Mr. Hsu, a lot of protecting.

02:35:13My point is not—

02:35:14It's not loyalty.

02:35:15It's destructive to the FDIC.

02:35:18You're missing the picture, in my view, sir, you're missing the picture.

02:35:22So you inform Representative Meeks that you feel Mr. Gruenberg can restore trust and credibility

02:35:29at the FDIC.

02:35:30You said, yes, you do.

02:35:32So you condone how he's handled things at the FDIC, and you think he's the right person,

02:35:37the only person that can correct the situation that was created under his leadership.

02:35:46Does that make any sense to you?

02:35:47I understand the question.

02:35:49I don't condone any actions that are inappropriate.

02:35:52My focus is on the actions that are going to restore trust with the employees of the

02:35:55FDIC.

02:35:56That's where my focus is.

02:35:57Okay, you keep saying action.

02:35:58What about his inaction?

02:35:59What about the inaction of many of the supervisors that were there?

02:36:02They should all be under scrutiny and carefully reviewed.

02:36:05I mean, it sounds like a madhouse that took place here.

02:36:09So currently, there are three critical actions that are being considered.

02:36:13They're under—both being supported and considered by the board, the hiring of the expert, the

02:36:18hiring of the monitor, standing up a new structure so that there's no fear of retaliation.

02:36:22Those are all being done by the full board, full board engagement.

02:36:25It sounds like one heck of a bureaucratic committee reviewing this, which will apparently

02:36:31take months.

02:36:32Meanwhile, leaving Mr. Gruenberg there and leaving employees in a state of malfunction

02:36:39and dysfunction and disarray.

02:36:41When did you first learn of this chaos taking place?

02:36:46I read it in the Wall Street Journal article.

02:36:49That's the first time you heard of it?

02:36:51Yes.

02:36:52Very disturbing.

02:36:53Were you surprised?

02:36:54I was very bothered by it, yes.

02:36:57Okay.

02:36:58Mr. McKinnon, when was the first time you heard about—you said you heard rumors years

02:37:04back?

02:37:05So, to be specific here, I heard, I think, maybe in September, August, that the Journal

02:37:14was looking into workplace culture issues.

02:37:17Were you surprised to hear it?

02:37:19About the workplace culture issues?

02:37:20Yeah.

02:37:21I didn't hear much about, in September or August, around what the Journal was going

02:37:24to report, so I was deeply shocked when I actually saw the stories in November.

02:37:28All right.

02:37:29So, everybody was shocked.

02:37:31Everybody was surprised.

02:37:33Just heard about it.

02:37:34He read about it in the paper.

02:37:36Yet, how much involvement do you have with the, on a daily, on a monthly basis with the

02:37:42FDIC?

02:37:43I'm a director, so we have monthly board meetings, and then there's meetings in between

02:37:48to deal with board matters.

02:37:49Right.

02:37:51Do you pay attention to board meetings?

02:37:52HR's general meetings.

02:37:53You don't pay any attention to it?

02:37:546,000 employees, you don't pay—no reason for the board to pay attention to the issues

02:38:01that their 6,000 employees have?

02:38:04The board is ultimately responsible for the agency, and so we need to take care of the

02:38:09employees.

02:38:10So, let me ask you this.

02:38:11You have four divisions within your agency, within, right, that you oversee.

02:38:15If one of your division directors, this was occurring within their division, how would

02:38:22you handle that with that division director?

02:38:25So, misconduct?

02:38:27Same way?

02:38:28Would you leave him there?

02:38:29Would you say, hey, you know what?

02:38:30I know this has been a mess for years.

02:38:33Women have been harassed.

02:38:35Men have been harassed.

02:38:37All kinds of abuse is taking place.

02:38:39Lawsuits.

02:38:40Right?

02:38:41I mean, you name it, it's bad.

02:38:43But I'm going to keep you there because I want you now to fix the mess that you made.

02:38:48No.

02:38:49Well, that's what you're doing with Mr. Gruenberg.

02:38:51So, wrongdoers must be held accountable.

02:38:53They will be held—

02:38:54How is it any different than what's happening with Mr. Gruenberg?

02:38:56Mr. Gruenberg was not cited as a root cause of the problems at the FDIC in the report.

02:39:00He's not cited as a root cause.

02:39:01There are recommendations which should lay out the actions—

02:39:03So, it needs to be a root cause, so your division director, you'd find out if he was part of

02:39:08the root cause.

02:39:09Mr. McKinnon, do you agree with that?

02:39:11Do you think that's a good management policy?

02:39:13No, as I said, I think we really need a fresh start, and the sooner the better at the building.

02:39:18Sooner the better.

02:39:19So, why not today?

02:39:20I yield back, Mr. Chairman.

02:39:23Gentleman from Pennsylvania yields back.

02:39:24The gentleman from Wisconsin, Mr. Fitzgerald, is now recognized for five minutes.

02:39:31Thank you, Chairman.

02:39:37Thank you, Chairman.

02:39:39I apologize, we have judiciary going on at the same time.

02:39:43We're all appalled at the findings of the report and the toxic culture at the FDIC.

02:39:50Last year, Discover's CEO, Roger Hochschild, quickly resigned after regulatory issues surfaced.

02:39:57Similarly, in March, New York Community Bank's CEO stepped down following the bank's near

02:40:02collapse.

02:40:03In either case, did a CEO wait around until permanent successor was in place?

02:40:08To Commissioner McKernan, do you agree that a responsible regulator would not be doing

02:40:14its job if it let a bank CEO stick around for similar conduct that was reported in the

02:40:20clearly Gottlieb investigation?

02:40:21I guess hypotheticals are always dangerous, but it is hard to imagine.

02:40:26Hard to imagine a bank regulator would let management stick around.

02:40:31Thank you.

02:40:32Comptroller Hsu, same question to you.

02:40:35Would a responsible regulator allow a CEO to stick around until permanent replacement

02:40:40is found despite the misconduct that's happened under the watch, yes or no?

02:40:43A responsible regulator will take the steps necessary to ensure the safety and soundness

02:40:47of the institution.

02:40:49Mr. Kim and Ms. Minoo, I'd like to discuss your recommendation of the 360 review of a

02:40:55chairperson or chairperson's direct reports.

02:40:58Can you briefly describe this 360 review, Mr. Kim?

02:41:05Yes, we believe that it would be important for the leadership to have the 360 review

02:41:12to be informed of the views and perspective both of people to whom they report, but also

02:41:20to those who report to them.

02:41:22Ms. Minoo, can you answer the same question?

02:41:26Yes, and just to add to what Mr. Kim said, we also heard when we spoke with FDIC employees

02:41:32as well as reviewing records of recommendations that employee resource groups have made in

02:41:39the past that there is interest by FDIC employees in 360 degree reviews, and so we included

02:41:45that as one of our recommendations.

02:41:47And your recommendation states that the 360 review should occur for at least the first

02:41:51two years by independent third party, is that correct?

02:41:55That's correct.

02:41:56Do you think this should be the same third party that will be working with the transformation

02:42:00monitor on the culture change, or do you see this as being a completely separate third

02:42:07party from the culture change role?

02:42:09As we say in the report, the independent third party may or may not be the same.

02:42:13Okay, so the Clery report highlighted the misconduct of Chairman Grunberg's in the reports

02:42:19section on findings.

02:42:21Do you think that your team would have still offered this recommendation?

02:42:25If you had not found misconduct perpetuated by the Chairman?

02:42:29Mr. Kim, can you answer that?

02:42:31I believe we saw value in the 360 reviews regardless of who was the Chairman and would

02:42:36have recommended a similar review.

02:42:39And because of the report highlighted the misconduct of the current Chairman of the

02:42:42FDIC, do you think the information obtained by the 360 review should be submitted to Congress

02:42:47to assist our oversight efforts of culture change?

02:42:53Our view was that it should be conducted by an independent party so that they're not worried

02:42:56about concerns or fear that management would hear about it.

02:43:02I don't think we recommended that it be made public or provided to Congress.

02:43:07I do think there are some questions about how open someone will be in their 360 reviews

02:43:12if they know it's going to be provided publicly.

02:43:15So that is not part of our recommendation that it be provided to Congress.

02:43:20Thank you.

02:43:21Chairman, I yield back.

02:43:23The gentleman yields back.

02:43:24The gentlewoman from California, Mrs. Kim, is now recognized for five minutes.

02:43:29Thank you.

02:43:30Mr. Hsu and witnesses, thank you for being here with us.

02:43:33Mr. Hsu, in a joint statement that is issued by you and Director McKernan to announce the

02:43:40release of the Clery-Gottlieb report, you say the report, in quote, it put the people

02:43:45of the FDIC first and focused on identifying root causes, end quote.

02:43:50You also noted that it was balanced, focused, and nonpartisan report.

02:43:56So do you still stand by this statement and sentiment that the Clery report put the people

02:44:01of the FDIC first?

02:44:03Yes.

02:44:04You do.

02:44:05Mr. Hsu, then, do you agree with the Clery report's assessment that Chairman Gruenberg's

02:44:10attributes hinder his ability to establish trust and confidence in leading a meaningful

02:44:16culture change at the FDIC?

02:44:19Because based on your statement regarding that report, you must agree that it is time

02:44:23for new leadership in order to put the people of the FDIC first.

02:44:28I agree with the report's conclusions that his actions present unique challenges to building

02:44:34trust with the staff, and that's why I'm very focused on actions.

02:44:37Do you still support Chairman Gruenberg?

02:44:42I'm focused on what I can control.

02:44:45What I can control is influencing the board to take the actions that are necessary to

02:44:49reestablish trust with the staff.

02:44:50That's where my focus is.

02:44:52Okay.

02:44:53You know, one of the recommendations of the report was for victims of abuse and harassment

02:44:58to have access to chairman of the FDIC, but that it stands today, unfortunately, it seems

02:45:07to be counterintuitive for those victims.

02:45:10Former Chairman McWilliams, for example, he spent a lot of time with the staff in cafeteria

02:45:15and rode the bus from Virginia Square to the other offices, where Chairman Gruenberg spends

02:45:21his time with only his small circle of trusted advisors.

02:45:26So let me ask you a question, Mr. Kim.

02:45:29Based upon your investigation, do FDIC staff believe that Chairman Gruenberg is an accessible

02:45:35chairman?

02:45:39I don't think we put that question in that way, whether he's accessible.

02:45:47What we learned, we put in the report, which is that although many employees had positive

02:45:53relationships with him, there were a certain number, including certain direct reports,

02:45:58who had had difficult interactions with him, and then there was a general—

02:46:02I think the point of the question is, as chairman, shouldn't just surround himself with the

02:46:09top executive senior members only, but should be accessible to all employees, regardless

02:46:15of their status or ranks.

02:46:17That's the accessibility question that I'm having with you.

02:46:21Accessibility is obviously a good thing, and being more accessible obviously helps and

02:46:28improves workplace culture.

02:46:29Let me ask the question to Mr. McKernan.

02:46:32If Chairman Gruenberg does open his door to victims of harassment, do you think that the

02:46:38findings made about his behavior towards staff would make employees hesitant to approach

02:46:43the chairman directly?

02:46:49I think, given the reputation that is documented in the Clery report, I suspect that would

02:46:53be challenging for some.

02:46:55So can you answer the same question?

02:46:59Why do you think it's important that the chairman is accessible to his employees, regardless

02:47:04of their status, rank, position?

02:47:07One of the things I certainly learned overseeing the investigation is you cannot, as a leader,

02:47:12rely simply on the formal reporting channels.

02:47:15They break down.

02:47:16You have to have a real deep-seated interest in trying to root out information, get your

02:47:24sense of the polls through other informal mechanisms, and that requires that open rapport

02:47:29with the staff.

02:47:30You know, to be clear, this is a great recommendation.

02:47:35The FDIC has a pervasive toxic culture, and because of that, employees should have a direct

02:47:41line to the chairman to report those issues.

02:47:44However, Chairman Gruenberg, at the hem, I'm not sure if the employees would benefit from

02:47:49direct access to him, or would even want to have that available to them, for that matter.

02:47:56In the report, Clery recommended that the FDIC hire an independent third party to advise

02:48:04and assist with the implementation of the recommendations, but I'm concerned that the

02:48:09leader of the office may feel a sense of loyalty to Chairman Gruenberg, so Director McKernan,

02:48:15would it have been valuable for the special review committee or other members, board members,

02:48:19to be involved in the decision-making process for setting up the office?

02:48:23Yes.

02:48:24This is actually a topic of some debate now.

02:48:27This monitor is a critical choice for us.

02:48:29It had originally been contemplated.

02:48:31I learned about the process when the chairman announced it at the hearing.

02:48:35Gentleman, this time has expired.

02:48:38Thank you.

02:48:39Gentleman from New York, Mr. Lawler, is now recognized for five minutes.

02:48:43Thank you, Mr. Chairman.

02:48:47Democrats say Chairman Gruenberg was not aware of the deep-seated cultural issues at the

02:48:54FDIC until it was revealed by public reporting.

02:48:59When Chairman McWilliams took over at the FDIC, she immediately saw the cultural issues

02:49:05that were prevalent at the agency.

02:49:09Chairman McWilliams came to the FDIC with a goal to know the issues faced by employees

02:49:15and took time to ride the shuttle to the Arlington and D.C. campuses, eat lunch in the cafeteria,

02:49:22had an open-door policy to hear employees' concerns.

02:49:26Through her outreach to employees, Chairman McWilliams noted that the toxic culture at

02:49:32the FDIC was readily apparent, and she began initiatives to improve the agency.

02:49:38Within the first three months of her tenure, Chairman McWilliams received a letter from

02:49:42anonymous African-American employees outlining a series of discriminatory acts at the FDIC.

02:49:52Chairman McWilliams worked with the employee resource groups and her staff to form employee-driven

02:49:57initiatives to fix the issues highlighted in the letter.

02:50:04And so, you know, when I look at this situation, some of my colleagues seem to believe that

02:50:11the report did a disservice to the FDIC because it focused only on the bad stories about Chairman

02:50:20Gruenberg, and they believe the report downplayed these same concerns under prior chairmen.

02:50:27Mr. Kim and Ms. Maynew, as part of your investigation, did you review workplace culture under prior

02:50:35chairmen of the FDIC other than Chairman Gruenberg?

02:50:40As we set forth in our report, we received reports from people who had suffered experiences

02:50:48that went back many years, and so our finding was that it did include information and reports

02:50:56during times that covered prior chairs as well.

02:51:00Did you hear from any employees about any differences between the leadership of prior

02:51:04chairs and Chairman Gruenberg's leadership?

02:51:11Our focus was on the reports of incidents that they experienced and their experiences

02:51:19with respect to the workplace culture.

02:51:22As we note in the report, their experiences with respect to workplace culture we found

02:51:28were longstanding and deeply ingrained, I believe is the word that we used.

02:51:33So that led us to a number of the recommendations as well as the findings, but we found in terms

02:51:40of the workplace culture issues that it was something that was longstanding and not attributed

02:51:45to a particular chair.

02:51:48Okay, in your review, do you recall employees reporting encounters with Chairman Baer or

02:51:52Chairman McWilliams where the employee described those chairmen as being unprofessional, aggressive,

02:51:58or hostile?

02:51:59As I said, we were not focused on...

02:52:07Yes or no?

02:52:08Do you recall anybody in your review?

02:52:11We do not recall anyone using those words.

02:52:14Anybody say they were disrespected, disparaged, treated unfairly by those chairmen?

02:52:19Yes or no?

02:52:24Not in the context of hotline reports, but in the context of discussing experiences with

02:52:30prior chairs, there were some who had noted that the former Chairman Sheila Baer could

02:52:37at times be difficult as well.

02:52:40Director McKernan, yes or no?

02:52:41Should Chairman Gruenberg step down immediately?

02:52:43Congressman, I think that's a decision for our elected leaders, but I would say we do

02:52:48need a fresh start, and the sooner the better.

02:52:51Oh, yes.

02:52:53We need a fresh start sooner rather than later.

02:52:55I'll take that as a yes.

02:52:58Isn't it true, shifting gears, isn't it true that when Silicon Valley Bank failed, it was

02:53:03not considered one of the large U.S. banks?

02:53:06In fact, it was not one of the top 10 largest banks in the U.S. at the time.

02:53:12And because of its comparatively small size, you understand that many of us on Capitol

02:53:16Hill have called into question why the systemic risk exception was invoked for Silicon Valley

02:53:22Bank.

02:53:24Many businesses in the tech industry had their money on deposit at Silicon Valley Bank, correct?

02:53:30Correct?

02:53:32Yes.

02:53:34And you understand that in most instances, their deposit accounts held far in excess

02:53:40of $250,000, correct?

02:53:44That's my understanding.

02:53:46Those politically connected companies would have lost lots of money without the systemic

02:53:50risk exception.

02:53:51The gentleman's time has expired.

02:53:52Correct?

02:53:53The gentleman's time has expired.

02:53:54The gentleman from Iowa, Mr. Nunn, is now recognized for five minutes.

02:53:56Thank you, Mr. Chair, without objection, I would like to yield my colleague from New

02:54:01York time required to finish his question.

02:54:05Thank you.

02:54:06The gentleman is recognized.

02:54:07You agree those politically connected companies would have lost a lot of money without the

02:54:11systemic risk exception, correct?

02:54:15The board of the FDIC voted unanimously for the systemic risk exception.

02:54:20I think as Director McKernan noted prior testimony, there was a lot going on at that time which

02:54:26supported that decision.

02:54:28Okay.

02:54:29When the systemic risk exception was invoked, it was announced that everyone's money would

02:54:32be safe and insured, correct?

02:54:37The board decided unanimously to invoke the systemic risk exception.

02:54:42Okay.

02:54:43And you're aware that the depositors base for Silicon Valley Bank included people from

02:54:47outside America, including significant Chinese interests, correct?

02:54:52The purpose of invoking the systemic risk exception is to ensure that the financial

02:54:55stability of the United States is protected, and the board voted unanimously to do that.

02:55:01Did companies with significant Chinese interests benefit from this decision?

02:55:05Again, the decision to invoke the systemic risk exception focuses on protecting the financial

02:55:11stability of the United States.

02:55:13Lastly, are you aware of any policies or directives within the FDIC regarding the treatment of

02:55:19Chinese depositors at Silicon Valley Bank?

02:55:22I'm not aware of that.

02:55:23I have to get back to you on that.

02:55:24Okay.

02:55:25Thank you.

02:55:26Thank you.

02:55:27To my colleague, Mr. Nunn.

02:55:28The gentleman from Iowa is recognized for 3 minutes and 27 seconds.

02:55:31Thank you, Mr. Chair.

02:55:32Members have noted I'm incredibly disappointed the chairman chose not to be with us today.

02:55:36Clearly, the government report about the FDIC's workplace culture concerning, to quote the

02:55:41200-page report, the FDIC remains a good old boys club, rife with sexual harassment, discrimination,

02:55:49and other inappropriate misconduct.

02:55:52Other descriptions of the agency include a particular insular, hierarchy, risk-adverse

02:55:58culture, and a widespread fear of retaliation amongst the workforce that allowed misconduct

02:56:04to persist, including, in the last seven years alone, 92 harassment complaints made, zero

02:56:13resulted in any removal, reduction in greater pay, or any disciplinary action more severe

02:56:18than a suspension, something endemic in Washington, D.C.

02:56:21Adding to this disturbing culture was the abuse by Chairman Grimm's claim that he had

02:56:25no idea what was happening at the agency.

02:56:28Even though he ran it for 10 of the last 13 years when these claims were made.

02:56:34I think one of the most frustrating parts here is how could anyone trust him when it

02:56:37was the Wall Street Journal who found this after just interviewing a few individuals.

02:56:41So Director McKeown, I want to speak directly to you.

02:56:43Director McKeown, your resignation of examiners in training who are highly critical to our

02:56:49nation's economy doubled from 2001 until it hit a new high of 62 in the first nine months

02:56:55of 2022.

02:56:57Only 48% of examiners hired in the agency remain since 2017.

02:57:01Do you believe the inability of the FDIC to retain talent affects your ability to help

02:57:06regulate my hometown banks in Iowa?

02:57:09Certainly poses some risk.

02:57:10I would agree.

02:57:11How does the ability to retain the quality staff impact our ability to police and support

02:57:17and help regulate our banks if these people have all left the job market?

02:57:21I think it's a very important pressing question.

02:57:24If we can't get our staff retention issues fixed, it's going to continue to amount as

02:57:27a challenge for our mission.

02:57:28Do you know if the FDIC has fired any employees in the wake of these reports?

02:57:33The chairman's reported there has been four separations.

02:57:36It's my understanding that three of the four were resignations or retirements.

02:57:42You believe, Director McKeown, that the chairman should have been the first person fired on

02:57:46this list?

02:57:47Well, that is a question that is reserved to our elected leaders.

02:57:51But if I were asked by them my view on what's best for the agency, it's very clear to me

02:57:54that we need a fresh start sooner rather than later.

02:57:57I think 92 harassment cases would say he should have been gone.

02:58:00I think an entire country is looking for dependable leadership that's clearly failed, and they're

02:58:04asking for his resignation.

02:58:06He should listen to the country.

02:58:07So with that contrail, Hsu, you've read the Wall Street article report titled Strip Clubs,

02:58:15Lewd Photos, Boozy Hotels, the Toxic Atmosphere at the Bank Regulators FDIC that was published

02:58:20a year ago.

02:58:21I'm glad to hear that I have an extra copy here if you've not read it.

02:58:25Was this just an accepted part of the culture that you were part of?

02:58:30It's totally unacceptable.

02:58:31I would agree with that.

02:58:32It's not just normal as has been highlighted, correct?

02:58:36Totally unacceptable.

02:58:37Finally, one staffer was advised just smile and make your supervisor feel good, as was

02:58:43reported in this.

02:58:45All the behaviors highlighted in that article are totally unacceptable, and the root causes

02:58:49of that are there's a culture and there's a structure at the FDIC which need to be transformed.

02:58:54Concur.

02:58:5520 women quit.

02:58:56We have an understaffed bank regulation.

02:58:58This is something the chairman needs to stand down and reconsider that culture.

02:59:01Gentlemen's time has expired.

02:59:02Gentlemen's time has expired.

02:59:03Thank you, Mr. Chair.

02:59:04I would like to thank all of our witnesses for their testimony today.

02:59:07Without objection, all members have five legislative days to submit additional written questions

02:59:11for the witnesses to the chair.

02:59:13The questions will be forwarded to the witnesses for a response.

02:59:16I'd ask our witnesses to please respond no later than August 1st, 2024.

02:59:21This hearing is adjourned.

House Financial Services Committee Holds Hearing To Examine FDIC’s Failed Leadership & Toxic Culture

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