    [House Hearing, 118 Congress]
    [From the U.S. Government Publishing Office]

                       OVERSIGHT OF PRUDENTIAL REGULATORS
    =======================================================================

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 15, 2024

                                   __________

                               Serial No. 118-92

           Printed for the use of the Committee on Financial Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                   __________

                           U.S. GOVERNMENT PUBLISHINGN OFFICE
    56-464 PDF                    WASHINGTON : 2026
    =======================================================================

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                   PATRICK McHENRY, North Carolina, Chairman

    FRENCH HILL, Arkansas, Vice          MAXINE WATERS, California, Ranking
        Chairman                             Member
    FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice
    PETE SESSIONS, Texas                     Ranking Member
    BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
    BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
    BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
    ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
    ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
    ROGER WILLIAMS, Texas                AL GREEN, Texas
    TOM EMMER, Minnesota                 EMANUEL CLEAVER, Missouri
    BARRY LOUDERMILK, Georgia            JAMES A. HIMES, Connecticut
    ALEXANDER X. MOONEY, West Virginia   BILL FOSTER, Illinois
    WARREN DAVIDSON, Ohio                JOYCE BEATTY, Ohio
    JOHN W. ROSE, Tennessee              JUAN VARGAS, California
    BRYAN STEIL, Wisconsin               JOSH GOTTHEIMER, New Jersey
    WILLIAM R. TIMMONS, IV, South        VICENTE GONZALEZ, Texas
        Carolina                         SEAN CASTEN, Illinois
    RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
    DANIEL MEUSER, Pennsylvania          STEVEN HORSFORD, Nevada
    SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
    ANDREW R. GARBARINO, New York        RITCHIE TORRES, New York
    YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
    BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
    MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
    MICHAEL LAWLER, New York
    ZACHARY NUNN, Iowa
    MONICA DE LA CRUZ, Texas
    ERIN HOUCHIN, Indiana
    ANDREW OGLES, Tennessee
                        Matthew Hoffmann, Staff Director

                             C  O  N  T  E  N  T  S

                                  ----------

                            Wednesday, May 15, 2024

                                                                       Page

                               OPENING STATEMENTS

    Hon. Patrick T. McHenry, Chairman of the Committee on Financial
      Services, a U.S. Representative from North Carolina............     1
    Hon. Maxine Waters, Ranking Member of the Committee on Financial
      Services, a U.S. Representative from California................     2

                                   STATEMENTS

    Hon. Hon. Andy Barr, Chairman of the Subcommittee on Financial
      Institutions and Monetary Policy, a U.S. Representative from
      Kentucky.......................................................     4
    Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
      Institutions and Monetary Policy, a U.S. Representative from
      Illinois.......................................................     4

                                   WITNESSES

    Hon. Michael Barr, Vice Chairman for Supervision, Board of
      Governors of the Federal Reserve System (Fed)..................     5
        Prepared Statement...........................................     8
    Hon. Martin Gruenberg, Chairman, Federal Deposit Insurance
      Corporation (FDIC).............................................    15
        Prepared Statement...........................................    17
    Hon. Michael Hsu, Acting Comptroller, Office of the Comptroller
      of the Currency (OCC)..........................................    41
        Prepared Statement...........................................    43

                                    APPENDIX

                  ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

    Hon. Patrick T. McHenry:
        Prepared Statement from Hon. Todd Harperk, Chairman of the
          National Credit Union Association (NCUA)...................   110
    Hon. French Hill:
        Enforcement Action Chart.....................................   122
        US Discusses Finalizing Bank Capital Rules as Soon as August.   123
        The FDIC's Campaign Against Fintech Companies................   126
        FDIC's response to February 2, 2024 letter regarding fintech
          companies..................................................   130
    Hon. Frank D. Lucas:
        Joint Agricultural Trade Association Letter..................   139
        Joint Energy Trade Association Letter........................   141
        American Public Power Association and National Rural Electric
          Cooperative Association....................................   143
    Hon. Daniel Meuser:
        Letter from the Chambers of Congress to President Biden......   146

                     RESPONSES TO QUESTIONS FOR THE RECORD

    Written responses to questions for the record from Hon. Michael
      Barr...........................................................   150
    Written responses to questions for the record from Hon. Martin
      Gruenberg......................................................   209
    Written responses to questions for the record from Hon. Michael
      Hsu............................................................   255

                                  LEGISLATION

    H.R. 8287, Stress Testing Accountability and Transparency Act....   276
    H.R. 8264, Bank Supervision Appeals Improvement Act..............   279
    H.R. 8288, Bringing the Discount Window into the 21st Century Act   305
    H.R. 4346, Small Bank Holding Company Relief Act.................   312

                       OVERSIGHT OF PRUDENTIAL REGULATORS

                                  ----------

                            Wednesday, May 15, 2024

                         U.S. House of Representatives,
                               Committee on Financial Services,
                                                        Washington, DC.

        The committee met, pursuant to notice, at 10:03 a.m., in
    room 2128, Rayburn House Office Building, Hon. Patrick T.
    McHenry [chairman of the committee] presiding.
        Present: Representatives McHenry, Lucas, Sessions, Posey,
    Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill,
    Loudermilk, Davidson, Rose, Steil, Timmons, Norman, Meuser,
    Fitzgerald, Garbarino, Kim, Flood, Waters, Velazquez, Sherman,
    Meeks, Scott, Lynch, Himes, Foster, Beatty, Vargas, Casten,
    Pressley, Tlaib, Torres, and Garcia.
        Chairman McHenry. The committee will come to order.
        Without objection, the chair is authorized to declare
    recess of the committee anytime.
        The hearing today is entitled, ``Oversight of Prudential
    Regulators.''
        Without objection, all members will have 5 legislative days
    within which to submit extraneous materials to the chair for
    inclusion in the record.
        Just one additional comment for members about the schedule.
    This hearing has a hard stop at 2 p.m. and an accommodation of
    the three regulators before us, so it will not go past 2 p.m.
    Now I will recognize myself for 4 minutes to give an opening
    statement.

     OPENING STATEMENT OF HON. PATRICK T. McHENRY, CHAIRMAN OF THE
      COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
                             NORTH CAROLINA

        We are here to conduct oversight of prudential regulators.
    There is plenty to discuss. Each of you on this panel has put
    forward a proposal that requires robust debate and explanation,
    yes, but you are first up, Mr. Gruenberg, and we all know why.
    You failed your employees, your Agency, and the American
    people. The fact that you have not yet resigned proves that you
    take no responsibility for your actions, and the words that you
    have used so far also make it clear you take no responsibility
    for your actions and let me be clear: showing up today is not
    an act of courage. It is an act of hubris. Last week, we were
    confronted with a report outlining appalling and abhorrent
    behavior at the Federal Deposit Insurance Corporation. This
    includes, Mr. Chairman, your verbally abusive behavior. This is
    beyond partisanship. It is clear from this report that deep
    institutional changes at the Federal Deposit Insurance
    Corporation (FDIC) are necessary. Mr. Gruenberg, you are not
    the right person to lead those changes.
        President Biden once said, ``I am not joking when I say
    this. If you are ever working with me and I hear you treat
    another colleague with disrespect, talk down to someone, I
    promise, I will fire you on the spot.'' So I ask my colleagues,
    Democrat and Republican, the President, as well, if that
    behavior outlined in this report does not rise to that level,
    what does? Unfortunately, some of my colleagues may attempt to
    defend the indefensible today by shifting blame to Republican
    FDIC chairs, but let me remind my colleagues, Chair Gruenberg
    has led this Agency for 10 of the last 13 years. You may hear
    about employees' favorability ratings, which come from annual
    surveys conducted of Federal employees at Federal agencies.
    There was a decline in satisfaction in the 2018 survey, which
    only included a couple of months of former Chair McWilliams'
    tenure, so that steep decline was dissatisfaction with Chair
    Gruenberg. Then in 2020, during the core of former Chair
    McWilliams' leadership, FDIC employee satisfaction went up to
    its highest level since 2012, and that was before Mr.
    Gruenberg's first stint as chair. When Chair Gruenberg returned
    to lead the Agency again, employee satisfaction plummeted. So I
    implore my colleagues to be consistent when judging the
    behavior of our regulators. This is not just about
    mismanagement. It is clear misconduct.
        It is a shame we have to spend this much time talking about
    your conduct and failed leadership. There are very real issues
    facing our financial system that deserve this committee's full
    attention. The Biden Administration's banking regulators are
    busy pursuing serious agendas, some of us view as partisan
    agendas, that are focused on policies that do not support the
    economy, this financial system and the safety and soundness of
    the financial system, or the needs of American families but
    first, we have to focus on the conduct of the FDIC chair and
    ensure that this very important Agency returns to a safe and
    sound manner and practice as our financial system needs it. So
    we have significant proposals at the FDIC, yes, and at the
    Federal Reserve System (Fed), and just earlier this week, Chair
    Powell testified that the Basel III Endgame proposal would
    undergo significant changes and I view that as quite promising,
    and I certainly hope my colleagues will ask Mr. Barr about that
    as well.
        With that, I will yield back and recognize the ranking
    member for 4 minutes for an opening statement.

    OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
      COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
                               CALIFORNIA

        Ms. Waters. Thank you very much, Mr. Chairman. Good
    morning. I would like to thank our witnesses from the Federal
    Reserve, the FDIC, and the Office of the Comptroller of the
    Currency (OCC) for coming before the committee today.
        I want to start by addressing the FDIC report on workplace
    culture and sexual harassment that was released last week. The
    report was deeply troubling and makes clear that under both
    Republican and Democratic chairs, the FDIC has not done its job
    to properly address the deep-rooted, toxic work culture that
    has festered over many years at the Agency. All employees
    deserve a work environment where they feel safe, and it is
    Chair Gruenberg's responsibility to make sweeping changes
    properly for the benefit of every FDIC worker. While the report
    scrutinizes Chair Gruenberg, I am disappointed the report
    seemed to downplay workplace concerns and complaints of
    harassment that occurred under prior Republican Agency
    leadership. Regardless, the FDIC as an institution has a lot of
    work to do.
        The Agency can start by expediting the implementation of
    the action plan I requested of Chair Gruenberg last year, along
    with the recommendations laid out in the most recent report. As
    the report states, tone does start at the top, and I am
    concerned that Republicans, who have been quick to call Chair
    Gruenberg to resign, are selectively applying that standard.
    After all, the top Republican and nominee to be President is
    currently on trial regarding the first of a series of criminal
    indictments and has been found liable for sexual abuse.
    Hopefully, this concerns them, too, and they will call on the
    former President to step down and withdraw his nomination. Now
    I look forward to hearing from Chair Gruenberg who has
    committed to making the necessary changes to turn the tide on
    the culture at the FDIC.
        Under the leadership of Chair Gruenberg, the FDIC has done
    a lot of important work, including his work to combat modern-
    day redlining by strengthening the Community Reinvestment Act,
    not to mention the quick action taken to prevent last year's
    regional bank failures from spiraling into a full-on financial
    crisis. As important as this work is, it will be permanently
    tainted if the working environment of the people doing the work
    remains mired and toxic. It is crucial that we have a regulator
    who works every day to not only promote stability and ensure
    the banking system serves all of our constituents but also
    treats its employees with fairness and kindness. I am
    disappointed in your performance on the latter, Chair
    Gruenberg.
        Turning to a few other matters that are the subject of
    today's hearing, I want to applaud the FDIC, OCC, and Federal
    Housing Finance Agency (FHFA) by heeding the calls I made after
    last year's bank failures to implement Section 956 of Dodd
    Frank, to hold greedy bank executives accountable for reckless
    risk taking. It is past time for the Fed and other regulators
    to follow suit and implement this congressional mandate without
    further delay. In addition, I look forward to hearing what our
    regulators are doing to build on committee Democrats' record of
    protecting consumers in light of the proposed Capital One and
    Discover merger to create the largest credit card lender in the
    country. I want to hear what regulators are doing to put away
    the rubber stamp and strengthen bank merger reviews. I am glad
    the Fed and OCC announced they will hold a public hearing in
    July. I hope regulators listen to the feedback and then block
    this deeply flawed merger. As the climate crisis worsens, I am
    also eager to hear about their efforts to ensure climate risk
    is taken seriously as a risk to our banking system and that
    diversity and inclusion is front and center, especially in the
    light of misguided Republican attacks.
        I look forward to today's discussion, and I yield back.
        Chairman McHenry. I will now recognize the chair of the
    Financial Institutions and Monetary Policy Subcommittee, Mr.
    Barr of Kentucky, for 1 minute.

     STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE SUBCOMMITTEE ON
          FINANCIAL INSTITUTIONS AND MONETARY POLICY, A U.S.
                      REPRESENTATIVE FROM KENTUCKY

        Mr. Barr of Kentucky. Mr. Gruenberg, the Cleary report on
    harassment issues at the FDIC outlining your temperament and
    inability to lead shows an Agency in crisis. As the report made
    clear, your stubborn lack of self-awareness and mismanagement
    mean that you are not the person to respond to the FDIC's
    crises, and you do not have the moral authority to lead the
    needed transformation of the FDIC. The Cleary report on your
    prior participation in Operation Choke Point and the leadership
    coup at the FDIC that you engaged in with Mr. Chopra makes
    clear that you prioritize politicizing a supposed independent
    Agency over the safety and soundness of our financial system,
    and, therefore, it is time for you to resign. Do you think for
    1 minute that if the kind of misconduct outlined in the report
    was uncovered at an FDIC-regulated bank, that Chair Gruenberg
    would offer any kind of grace to the management of that bank?
    The question answers itself.
        On the issue of Basel III, I want to make my ongoing
    position clear that the fundamentally flawed proposal must be
    scrapped, and at most there should be a re-proposal, if
    justifiable. I yield back.
        Chairman McHenry. Now the ranking member of the Financial
    Institutions and Monetary Policy Committee will be recognized
    for 1 minute. Mr. Foster is recognized for 1 minute.

          STATMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND MONETARY POLICY, A
                   U.S. REPRESENTATIVE FROM ILLINOIS

        Mr. Foster. Thank you, Mr. Chairman. Last week, like many
    of my colleagues, I was appalled by the findings of the
    independent review and the allegations of sexual harassment and
    interpersonal misconduct that have been festering at the FDIC
    for far too long. The report paints a picture of an Agency
    plagued by a toxic culture that has allowed inappropriate
    workplace conduct to persist without accountability. Despite
    the purported efforts under both Democratic and Republican
    Administrations to address these ongoing issues for more than a
    decade, hundreds of current and former FDIC staff bravely
    shared stories of workplace misconduct with the authors of the
    report with some, in fact, going to great lengths to hide their
    identity. As someone who has led successful organizations and
    teams, I know that an organization's culture starts at the top,
    and we need agency leaders who comprehend the problem and are
    committed to implementing and following through the meaningful
    reforms that will ensure our agencies can attract and retain
    dedicated staff.
        Our banking regulators have important work to do, much of
    which we will be highlighting today, but it is essential to the
    success of that work that meaningful action is taken to address
    these long-term personnel issues. I encourage my colleagues to
    take the time to fully review the facts of the situation. Thank
    you, and I yield back.
        Chairman McHenry. Today we welcome the testimony of
    Honorable Michael S. Barr, vice chair for supervision of the
    Federal Reserve Board of Governors; Hon. Martin J. Gruenberg,
    chairman of the Board of Directors of the Federal Deposit
    Insurance Corporation; and Mr. Michael Hsu, acting comptroller
    of the Office of Comptroller of the Currency.
        You will be recognized for 5 minutes to give an oral
    presentation of remarks. You all are accustomed to this,
    testifying before this committee.
        Without objection, your written statements will be made a
    part of the record, and without objection, the statement of
    Hon. Todd Harper, chairman of the National Credit Union
    Administration, will be included in the record as well. He is
    not here today because of exigent circumstances, made well
    aware of the committee well beforehand, so we will include his
    testimony without objection.

        [The information referred to can be found in the appendix
    on page 110.]

        Chairman McHenry. Finally, before we begin, I will swear
    the witnesses in, so if you will please stand and raise your
    right hand. Once I read the oath, I will ask each of you to
    respond individually.
        Do you solemnly swear or affirm that the testimony you will
    give before this committee in the matters under consideration
    will be the truth, the whole truth, and nothing but the truth,
    so help you God? Again, Mr. Barr?
        Mr. Barr. I do.
        Chairman McHenry. Mr. Gruenberg.
        Mr. Gruenberg. I do.
        Chairman McHenry. Mr. Hsu.
        Mr. Hsu. I do.
        Chairman McHenry. Thank you. You may be seated.
        The record will reflect each witness answered in the
    affirmative.
        We will now recognize Vice Chair Barr for 5 minutes to give
    an oral presentation of your remarks.

    STATEMENT OF HON. MICHAEL BARR, VICE CHAIRMAN FOR SUPERVISION,
            BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

        Mr. Barr. Chairman McHenry, Ranking Member Waters, and
    other members of the committee, thank you for the opportunity
    to testify on the Federal Reserve's supervisory and regulatory
    activities. Accompanying my testimony is the Federal Reserve's
    Semi-Annual Supervision and Regulation Report. Today, I will
    discuss current conditions in the banking sector, supervisory
    activities, and some of our recent regulatory proposals.
        Overall, the banking system remains sound and resilient.
    Banks continue to report capital and liquidity ratios above
    minimum capital regulatory levels. Overall asset quality
    remains generally sound. Capital ratios increased throughout
    2023, leaving the system better positioned to weather potential
    losses. Liquidity conditions overall are stable. Notably,
    liquid assets on bank balance sheets remained above their 10-
    year average throughout 2023.
        Additionally, there has been a decrease in the share of
    uninsured deposits in the system. However, both supervisors and
    banks must remain vigilant and ready for expected and
    unexpected stresses, and presently there are several risks we
    are monitoring. For example, delinquency rates are rising among
    certain commercial real estate loans, such as those backed by
    offices, and some consumer loan sectors. Commercial Real Estate
    (CRE) delinquencies are now at a 5-year high. Credit card and
    auto loan delinquencies have been rising. In response to rising
    delinquencies, banks have increased loan loss provisions. On
    this basis, combined with their capital positions, the banking
    sector as a whole should be prepared to absorb loan losses that
    may materialize and continue fulfilling its vital role
    providing credit to households and businesses. The Federal
    Reserve continues to monitor these conditions closely.
        It has been a little over a year since the sudden failure
    of Silicon Valley Bank (SVB) and ensuing stress in the banking
    system, events which highlighted the need to improve the speed,
    force, and agility of supervision to better align with the
    risks, size, and complexity of supervised banks as appropriate.
    We have been making progress on these goals. First, we are
    working to ensure supervision intensifies at the right pace as
    a bank grows in size and complexity. Second, we are modifying
    supervisory processes so that once issues are identified, they
    are addressed more quickly by both banks and supervisors.
    Third, we are finding ways to better incorporate forward-
    looking risk analysis into supervision.
        The lessons learned from SVB are not only applicable to our
    supervisory framework. Certain aspects of the failure show that
    enhancements to our regulatory framework would benefit the
    safety and soundness of the banking system. One of these
    enhancements was already in process several months before SVB's
    failure through an advanced notice of proposed rulemaking
    expanding the application of long-term debt requirements to
    additional large banks. Subsequently, the Board, the FDIC, and
    the OCC followed up with a proposed rule that would increase
    the options available within the resolution process and enhance
    financial stability. We are going through comments we received
    on this proposal carefully.
        Another important area is liquidity risk management. A
    striking feature of last year's bank stress was that SVB,
    Signature Bank, and First Republic struggled to cope with
    unprecedented deposit outflows. Banks found it difficult to
    monetize their held-to-maturity securities through repo
    transactions under severe stress and were not adequately
    prepared to utilize the Federal Reserve's discount window. We
    are exploring targeted adjustments to our regulatory framework
    that would address each of these concerns: deposit outflows,
    held-to-maturity monetization, and discount window
    preparedness. The Federal Reserve's lending to banks through
    the discount window plays an important role in supporting the
    liquidity and stability of the banking system and the effective
    implementation of monetary policy. We are reaching out to a
    wide range of depository institutions of all sizes to learn
    from their experiences with the discount window in order to
    improve our operations.
        Turning to capital, a safe and sound banking system is
    critical to a healthy economy, and capital is foundational to
    safety and soundness. A well-capitalized banking system reduces
    the probability that stressful conditions result in financial
    crises, which inflict devastating economic costs and suffering
    for families and businesses all across the country. Since my
    last testimony, we have received numerous and meaningful
    comments on our proposal. We also received additional data. We
    are closely analyzing this information, and I expect that we
    will have a set of broad, material changes to the proposal that
    allow us to have a broad consensus in moving the proposal
    forward. The changes will enable us to have a safer financial
    system that better serves American households and businesses.
    Thank you.

        [Prepared statement of Mr. Barr follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman McHenry. Chairman Gruenberg, you are recognized
    for 5 minutes.

     STATEMENT OF HON. MARTIN GRUENBERG, CHAIRMAN, FEDERAL DEPOSIT
                         INSURANCE CORPORATION

        Mr. Gruenberg. Thank you, Mr. Chairman. Chairman McHenry,
    Ranking Member Waters, and members of the committee, thank you
    for the opportunity to appear before you today. My written
    statement reports on the state of the banking industry and the
    condition of the FDIC's Deposit Insurance Fund. The written
    testimony also provides an update on FDIC resolution activities
    and discusses proposed improvements in regulation and
    supervision. However, I would like to focus my remarks today on
    the FDIC's ongoing efforts to transform its workplace culture.
        Let me begin by saying that I am deeply committed to the
    FDIC and its mission as well as to the people on whom that
    mission depends. That is why when reports of sexual harassment,
    discrimination, and other misconduct surfaced last year, it was
    essential as a starting point to gain a deeper understanding of
    the Agency's workplace culture. At my direction, the FDIC
    initiated an independent third-party review to determine the
    depth and extent of these issues. Last week, the results of
    that review, which was conducted by the law firm of Cleary
    Gottlieb, were released.
        The review found that for an extended period of time, the
    FDIC has failed to provide a workplace safe from sexual
    harassment, discrimination, and other personal misconduct. I
    accept the findings of the report, and as chairman, I take full
    responsibility to anyone who has experienced sexual harassment,
    discrimination, or other misconduct at the FDIC. I, again,
    personally want to apologize and express how deeply sorry I am.
    I also acknowledge my own failures as chairman, both in failing
    to recognize how my temperament in meetings impacted others and
    for not having identified the deeper cultural issues at the
    FDIC sooner. I am personally committed to addressing these
    issues. We accept all of the recommendations of the report and
    are incorporating them into our existing action plan for a
    safe, fair, and inclusive work environment. To restore
    credibility to our workforce, we must act swiftly on the
    report's recommendations and demonstrate a commitment to making
    fundamental changes. For this reason, we are already
    implementing several key recommendations of the report.
        The report recommends that we identify and appoint a
    transformation monitor who will monitor, audit, and report on
    our implementation of the recommendations. We have already
    begun this process and will issue a request for proposals for
    this purpose as early as this week. The report also recommends
    that we engage an independent third-party expert to support our
    efforts. We have begun that process and will also issue a
    request for proposals for that purpose as early as this week.
    The report recommends fundamental change to the Agency
    structure and procedures for receiving and investigating
    complaints and taking disciplinary action against misconduct in
    light of the failures of the existing officers delegated to
    those duties. We will do this by proposing the establishment of
    an independent office of professional conduct, which will
    report directly to the FDIC Board of Directors. It will be
    charged with fulfilling these responsibilities, including
    through the use of outside third parties to conduct
    investigations. The transformation monitor and independent
    third-party expert will advise us on this proposal.
        Since December, the FDIC has been focused on implementing
    its action plan to address all aspects of the issues raised in
    the news reports last year. The action plan represents an
    Agency-wide effort with participation by employees at all
    levels. Many of the recommendations outlined in the report are
    already encompassed by the Agency's action plan. The action
    plan is focused on three core elements: providing more support
    and resources to victims, strengthening our process for
    reporting and investigating complaints, and improving
    accountability for anyone who is found to engage in misconduct,
    including through separation from the Agency. The new Office of
    Professional Conduct will address these core objectives.
        Mr. Chairman, it is my privilege to lead and work alongside
    everyone at the FDIC. Our people are dedicated to the Agency
    and its mission. They deserve a workplace where all feel safe,
    valued, and respected. There is no higher priority for me than
    delivering on that commitment. Thank you, and thank you for the
    additional time, Mr. Chairman.

        [Prepared statement of Mr. Gruenberg follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman McHenry. Mr. Hsu, you are recognized for 5
    minutes.

     STATEMENT OF HON. MICHAEL HSU, ACTING COMPTROLLER, OFFICE OF
                    THE COMPTROLLER OF THE CURRENCY

        Mr. Hsu. Thank you, Mr. Chairman. Chairman McHenry, Ranking
    Member Waters, and members of the committee, I am pleased to
    appear today to provide an update on the activities and
    priorities of the OCC.
        The overall condition of the Federal banking system is
    sound. OCC-supervised banks in aggregate continue to have
    strong levels of regulatory capital and sufficient liquidity
    buffers, though risks from commercial real estate and interest
    rate exposure continue to warrant attention. Banks and
    supervisors need to remain on guard against complacency, one of
    my top priorities for the Agency.
        The OCC's bank supervision operating plan for 2024
    highlights asset liability management, credit risk and
    allowance for credit losses, cybersecurity, operational risk,
    and consumer compliance risk as our key areas of focus. Another
    priority for the OCC has been promoting fairness in banking.
    This April marks the 1-year anniversary of OCC guidance to
    assist banks in managing risks associated with overdraft
    protection programs. Since the OCC's heightened attention on
    overdrafts began, the overdraft fees charged by OCC regulated
    banks in aggregate have fallen over 40 percent.
        Adapting to digitalization has been a third priority for
    the Agency. We recognize, for instance, that community banks
    may face hurdles and risk managing their third-party
    relationships, including with financial technologies
    (fintechs). Earlier this month, the OCC, Federal Reserve, and
    FDIC published a third-party risk management guide for
    community banks with examples of innovative approaches to
    conducting due diligence and assessing new fintech
    relationships.
        The OCC supports a diverse and dynamic banking system and
    continues its focus on updating our bank merger analytical
    frameworks. We remain committed to working with our interagency
    peers, including the Department of Justice, on this effort. To
    increase transparency, on January 29, we released for comment a
    proposed policy statement on bank mergers. We recently extended
    the comment period to June 15. My written testimony provides
    greater detail on these and other activities of the OCC.
        As co-chair of the FDIC's Special Review Committee, I would
    like to address briefly the recently released independent
    report on harassment and misconduct at the FDIC. The top
    priority for us all must be protecting the staff of the FDIC
    and putting people first. The harassment and misconduct
    detailed in the report are totally unacceptable. The number and
    scope of allegations, the patterns of misconduct in the
    longstanding culture revealed by the review are highly
    disturbing and need to be fixed.
        The root causes and recommendations cited in the report
    provide a clear roadmap for what needs to be done and why. That
    is where our attention must be focused to ensure the FDIC is a
    safe workplace for all of its employees. As a member of the
    FDIC board, I am committed to the transformation called for in
    the report. I am especially supportive of the report's
    recommendation to engage an external expert and establish an
    independent monitor to ensure that the Agency's efforts are
    tracked, that accountability is enforced. I also believe that
    Chairman Gruenberg has accepted responsibility for his and the
    FDIC's past failings and that he is fully committed to lead the
    Agency and taking the actions necessary to make it a safe place
    for everyone to work.
        Thank you. I will be happy to answer any questions.

        [Prepared statement of Mr. Hsu follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman McHenry. Thank you. I will now recognize myself
    for 5 minutes.
        Vice Chair Barr, if there are significant changes to your
    capital proposal, will you commit to re-proposing the rule for
    notice and comment?
        Mr. Barr. We have not made a decision on process yet. We
    are really focused right now on getting the substance right.
        Chairman McHenry. Do you think there will be an opportunity
    for noticing comment after whatever the next proposal is?
        Mr. Barr. Again, we have not focused yet on the process. We
    really are still trying to work our way through the substance
    and make sure we get that right.
        Chairman McHenry. All right.
        Mr. Barr. We have not made any decision yet.
        Chairman McHenry. We intend for you to comply with the law
    of the Administrative Procedures Act.
        Mr. Barr. Yes, we will.
        Chairman McHenry. Chairman Gruenberg, let me take you
    through the timeline of the last 15 months. In March, three
    major banks failed, including Signature Bank, which is directly
    supervised by your agency. In April, your own chief risk
    officer reviewed FDIC's actions leading up to Signature Bank's
    failure, concluding staffing, whether it be shortages or
    communication issues, was a major issue. Later in November,
    revelations about the workplace environment started to appear.
    When you testified before the committee, the Wall Street
    Journal had just reported on the toxicity of the FDIC's
    workplace, describing a culture ripe with harassment and
    discrimination. Six months later, an independent law firm
    commissioned by the FDIC released a report not only confirming
    your inappropriate conduct but confirming the toxicity of
    FDIC's culture and workplace environment by expanding on the
    magnitude of both. No need to go into the details of the report
    at this time, but looking back, I can say with confidence that
    the FDIC's workplace issues played a role in Signature Bank's
    failures. Would you?
        Mr. Gruenberg. Thank you, Mr. Chairman. I appreciate the
    question. As you indicated, our chief risk officer did a review
    of the failure of Signature----
        Chairman McHenry. No, I am asking you.
        Mr. Gruenberg. Yes.
        Chairman McHenry. Do you believe that the workplace issues
    impacted the Signature Bank failure and the response to it?
        Mr. Gruenberg. I am indicating, Mr. Chairman, that the
    report did not identify that as an issue.
        Chairman McHenry. I am asking you, do you think that is the
    case? You do not need to cover all this stuff to use time.
        Mr. Gruenberg. As far as I am aware, it was not a
    significant contributing factor, Mr. Chairman.
        Chairman McHenry. Okay. Let us run through the scenario.
    This report that you accept, you accept the report from Cleary
    Gottlieb.
        Mr. Gruenberg. I do.
        Chairman McHenry. Including the claims of your actions to
    your direct reports and folks in the Agency.
        Mr. Gruenberg. I do.
        Chairman McHenry. You accept that?
        Mr. Gruenberg. I do.
        Chairman McHenry. Okay, so the workplace environment you
    have, and the report indicates that when presented with bad
    news, your first reaction is to yell, scream, or berate the
    person presenting the bad information. Do you think a bank
    failure is bad information?
        Mr. Gruenberg. It is.
        Chairman McHenry. Did you remember responding to that bank
    failure weekend with any level of anger?
        Mr. Gruenberg. No.
        Chairman McHenry. No anger?
        Mr. Gruenberg. No.
        Chairman McHenry. Okay, so the report indicates that you
    are predisposed to pure anger and rage when presented with bad
    information. Do you accept that as part of the findings of the
    report?
        Mr. Gruenberg. I do accept the findings of the report, Mr.
    Chairman.
        Chairman McHenry. Okay, and so we are to believe that in
    the weekend where we had three major bank failures, that you
    were not angry, and you did not get angry when presented with
    bad information.
        Mr. Gruenberg. I did not, Mr. Chairman.
        Chairman McHenry. Okay. You have led the Agency for 10 of
    the last 13 years. We have had significant bank failures. Do
    you think that the fact that you respond to bad information by
    attacking or yelling at the person presenting that information
    makes those people less willing to present bad information to
    you?
        Mr. Gruenberg. I endeavor to entreat every employee with
    courtesy and respect.
        Chairman McHenry. That is not what the report indicates,
    sir, and that is why I am asking this specific question. If you
    berate the people you ask the question of----
        Mr. Gruenberg. I think the report indicates that even in
    circumstances in which I treat employees harshly in a
    conversation, employees still bring bad news to me.
        Chairman McHenry. Okay. The report indicates, one senior
    executive put it, ``There is a great reluctance to deliver bad
    news to Marty Gruenberg,'' and a number of employees, including
    senior executives, noted that this reaction could have the
    effect of chilling open conversations, and that his behavior
    hampers free flow of communications. You have led the Agency
    for 10 of the last 13 years. Your behavior is such that you
    apologize for folks in the Agency experiencing harassment and
    sexual harassment, but you never have apologized, and your
    written statements and press reports are here before this
    committee for your actions in this report. There is no apology
    for the people that you berated over the last 13 years of the
    Agency, or actually the last 20 years of the Agency, but you
    have been leading it for 10 years. Do you apologize to the
    people that you affected?
        Mr. Gruenberg. I certainly do, Mr. Chairman.
        Chairman McHenry. You certainly do.
        Mr. Gruenberg. I take responsibility for it.
        Chairman McHenry. Okay. You take responsibility for it, but
    you do not apologize?
        Mr. Gruenberg. No, I said I do apologize.
        Chairman McHenry. Okay. All right. I will recognize the
    ranking member for 5 minutes.
        Ms. Waters. Chair Gruenberg, at a hearing last November,
    after the Wall Street Journal articles were published, I asked
    you to provide an action plan outlining the steps the FDIC plan
    to take to address workplace issues related to sexual
    harassment and misconduct, and to ensure that all employees are
    provided a safe work environment. On December 1st, 2023, you
    provided that plan, which addressed eight major areas and
    contained over 30 specific tasks to be completed under those
    general areas. Approximately half of the tasks were to be
    completed at this time, and the other half were to be completed
    before the end of 2024. Which tasks have been completed and
    what improvements have come from them?
        Mr. Gruenberg. Thank you, Congresswoman. As I indicated, we
    initiated that plan in the immediate aftermath upon learning
    about these matters. I directed a third-party review. That
    review has now been completed. In addition, the action plan had
    a number of specific action items that we have been in the
    process of implementing, including increased protection for
    victims, a hotline, a training program, pulse checks in regard
    to workplace culture, and a range of other action items that we
    have been in the process of implementing, and as you indicated,
    will complete by the end of this year.
        In addition, after receiving the new report that was
    released last week, we have already begun to implement the core
    recommendations of that report, including action to retain an
    independent monitor to audit our implementation of all
    recommendations, to retain an expert third-party to advise us
    on our culture change efforts and I have indicated the core
    objectives that we are trying to address for the Agency are to
    strengthen the ability of employees to report misconduct, to
    provide independent investigations of misconduct, including by
    third parties, and to strengthen our disciplinary process so
    that there is swift and certain justice for victims appropriate
    to the misconduct that has occurred, including separating
    individuals from the Agency.
        I might also indicate that this year, four individuals have
    been separated from the Agency for misconduct. We have made
    management changes in key positions relating to this issue, and
    the implementation of a new independent Office of Professional
    Conduct will result in significant additional management
    changes by the Agency. We are committed to transformational
    change, to the structural change that I believe is the core
    recommendation of the report, and we have already begun to
    implement that.
        Ms. Waters. So what you are saying here in committee today
    is that you have implemented the plan, some of the tasks
    included in that plan have been completed, there is still more
    to be done, but you can see the results of the work of that
    plan already. Is that correct?
        Mr. Gruenberg. I think we can see certainly strengthened
    resources for anybody who is victimized, a hotline for anyone
    to report or seek assistance. We have instituted a training
    program for all 6,000 employees, which is already well underway
    and has already trained a significant number of our employees,
    and we are following through on all of the action items in the
    plan.
        Ms. Waters. I believe that employees must feel free to
    engage in discussions and to give complaints and have their
    concerns dealt with. Do you sense in what you are doing, you
    are opening up that opportunity for employees?
        Mr. Gruenberg. I believe we are. We have enlisted employees
    across the Agency in participating in the implementation of the
    action plan. We offered expressions of interest to employees in
    Washington as well as our regional offices to participate, many
    are. I think the Agency across the board is deeply committed to
    addressing these issues and to following through on
    implementing the action items.
        Ms. Waters. Thank you very much, and I yield back.
        Chairman McHenry. The gentlelady yields back. I will now
    recognize the vice chair of the full committee, Mr. Barr.
    Sorry. You are the vice chair of the Fed. I will now recognize
    the vice chair of the full committee, Mr. Hill, for 5 minutes.
        Mr. Hill. I thank the chairman and thank you for calling
    this hearing with our prudential regulators. Chairman
    Gruenberg, before I get into the more substantive part of my
    discussions, you and I had a discussion on the phone, and I
    said, since the 1990s, the Federal supervisory agencies have
    held financial services companies to an incredible high
    standard about workforce practices, human resources practices,
    diversity training. It is a part of the routine review of bank
    regulators of regulated institutions.
        As I said to you on the phone, I think this is a horrible
    double standard that here, 35 years later, 30 years later, we
    are having this kind of discussion about a Federal agency that
    is at the epitome of leadership in the financial oversight and
    supervision. I find that really disappointing, and that is why
    I have joined my colleagues in suggesting, I think in the best
    interest of banks and the Agency itself and your employees that
    you step down as chair.
        You answered a question to Chairman McHenry that somehow
    you did not get angry, but I am looking at the report itself.
    Around the time of Silicon Valley's failure, May 2023, there
    was a meeting intended to cover corporate governance
    regulations with the chairman. He switched topics to talk about
    bank failures and according to one of the participants,
    Chairman Gruenberg went on a rant for 45 minutes, directing his
    ire at a particular individual, threatening that he could fire
    or reassign anybody he wanted. The meeting was so uncomfortable
    that the person who felt targeted by the chairman sent a Teams
    message out to everybody who was on the telephone. I want to
    say I am not sure you answered that question truthfully. Do you
    want to respond on that to the chairman?
        Mr. Gruenberg. Yes, Congressman. I believe the question
    directed to me was on that initial weekend of the failures, and
    I was responding to that. I take the point you raised in regard
    to the meeting in May, which was well after that, as you know.
        Mr. Hill. Yes. Well, I mean, I do not think we should parse
    words here. I do not consider that responsive. I think the
    chairman asked an open-ended question.
        Let me turn to Vice Chairman Barr. As you know, the courts
    have previously invalidated agencies' rulemaking where the
    final rule was not a ``logical outgrowth'' of the proposed
    rule. We have a case like that also in broker-dealers in the
    Securities and Exchange Commission (SEC) in 1993, Tim Pinero v.
    the SEC and the Investment Company Institute and the CFTC in
    2013, and Investment Company Institute v. the CFTC, where the
    Agency's final rule deviated so much from the proposal that the
    court concluded that commenters were not given an adequate
    opportunity to have feedback. In other words, if you are going
    to try to fix a bad proposal, the public must have a meaningful
    opportunity to comment on these unanticipated changes.
    Bloomberg and other outlets have reported that the agencies
    that all three of you represent today have ``already decided to
    adjust the original proposal rather than start over.''
        So let me start with you, Vice Chairman Barr. Have the
    agencies already agreed to tweak the existing proposal and not
    start over and re-propose?
        Mr. Barr. We have not made any decision at all with respect
    to the process, as I indicated to the chair. When that
    Bloomberg article came out, the Federal Reserve issued a
    statement indicating as such. We are very much focused on the
    process.
        Mr. Hill. Let me ask Chairman Gruenberg, have the agencies
    among themselves decided that, in fact, they are going to just
    simply tweak this rule and make it final and not re-propose?
    Yes or no.
        Mr. Gruenberg. No, Congressman.
        Mr. Hill. Mr. Hsu?
        Mr. Hsu. No.
        Mr. Hill. Very good. Well, that is helpful because Chairman
    Powell, I think, made very clear that there are substantial
    changes that need to be made to this rule, and I think to this
    committee, many of us believe that means this rule should be
    re-proposed. All three of you are members of Financial
    Stability Oversight Council (FSOC), and you probably heard
    Secretary Yellen's call last week that suddenly that we need to
    establish a new Federal bailout fund for mortgage servicers.
    Did you hear that comment, Vice Chair?
        Mr. Barr. I am not sure I would have characterized the
    comment in that way, but the FSOC did issue a report on nonbank
    mortgage servicers that highlighted risks associated with--
        Mr. Hill. But did she not call for a Federal fund to
    support them in case they got into financial trouble?
        Mr. Barr. The FSOC report had a set of recommendations. One
    of those was for Congress to think about an industry-funded
    liquidity facility.
        Mr. Hill. Okay. Let me reclaim my time on that and let me
    remind all of you why we are in this boat, because Dodd-Frank,
    pushing the mortgage servicing business out of the depository
    institutions that were regulated, had high capital, had regular
    supervision, and shifted it to the nonbank sector. Would you
    say that was a primary cause, the Dodd-Frank Act did create
    that incentive, Mr. Barr?
        Mr. Barr. I think there were a set of factors that gave
    rise to----
        Mr. Hill. But that was one of the factors. Would you agree
    with that?
        Mr. Barr. I think that one of the factors was the way in
    which technology changed and the economy changed.
        Mr. Hill. I will yield back, Mr. Chairman, but we will have
    questions for the record on that topic.
        Chairman McHenry. The gentleman from California, Mr.
    Sherman, is recognized for 5 minutes.
        Mr. Sherman. Mr. Chairman, I would hope that we would have
    a separate hearing devoted exclusively to the horrendous
    revelations at the FDIC. What we have here is this Hobson's
    choice of using our time to focus on how 6,600 employees at the
    FDIC have been treated and how we are going to dramatically
    affect the entire economy. I am going to focus on the latter,
    but I hope we have a hearing where we can focus on the former.
        Chairman McHenry. I am happy to accommodate the ranking
    member.
        Mr. Sherman. My concern, especially for Mr. Barr, is that
    this overall approach, first it is being sold as if it is
    conforming with a European or international standard, but
    actually, we are going to have much higher standards than
    Europe. That means less lending, but then we are going to have
    these higher standards, but then we are going to have lower
    standards than we should have for money going to Wall Street.
    For example, we ignore the interest rate risk on long-term
    bonds that are in the ``hold-to-maturity account.'' I want to
    commend you for at least dealing with the available-for-sale
    account but Wall Street investments, as we learned from Silicon
    Valley Bank, it is the interest rate risk that is the big risk,
    and that risk is undercounted.
        What we also undercount is we have only a 65-percent rate
    for loans to publicly traded companies, where an equivalent
    company that is not publicly traded, 100 percent rate. There
    are many ways to raise money on Wall Street, but that local
    pizzeria can only raise money from the bank, and anything that
    makes that loan less likely to happen concerns me, but I also
    want to focus on the discount.
        There are rumors or reports that you are going to change
    the rules for discount window. I would hope that you would make
    that window more available to small-and medium-sized banks and
    make the technological changes necessary but the proposal is
    that the amount of capital that would have to be pledged would
    relate not just to the amount being borrowed, but whatever the
    bank had in uninsured deposits, and that you would end up with
    the absurd circumstance that if a bank wanted to borrow $1
    million but happened to have $1 billion in uninsured deposits,
    it would have to pledge $400 million in capital to on borrow $1
    million.
        Can you assure me that the amount of capital that you have
    to pledge to borrow from the discount window will relate to the
    amount you are borrowing from the discount window and not based
    on the total uninsured deposits of the bank?
        Mr. Barr. Thank you, Representative Sherman. You have
    touched on quite a number of topics. I will say, on the credit
    side, first of all, with respect to capital----
        Mr. Sherman. If you could just focus on the question I
    asked. I have limited time.
        Mr. Barr. The question related to discount window
    preparedness. We are working through the substance of that now.
    We are looking at a range of measures to make sure that banks
    are ready to use the discount window--
        Mr. Sherman. Can you assure me that the amount of capital
    you pledge will relate to the amount you borrow from the
    discount window and that this will not relate to just the
    general balance sheet of the bank?
        Mr. Barr. We are looking at a range----
        Mr. Sherman. It is a ``yes'' or ``no'' question, sir.
        Mr. Barr. We are looking at a range of ways to think about
    what----
        Mr. Sherman. Okay, so that is not an assurance, and the
    absurd example I just gave could, under your answer, be the new
    rule.
        Mr. Barr. I am not sure I fully understood the nature of
    the example, but we are looking at a range of ways of making
    sure that banks have enough discount window preparedness.
        Mr. Sherman. I would hope that we would make it possible
    for midsized banks to accommodate charities and businesses that
    have to have accounts of over $250,000 for operations. I am
    concerned about the effect that these new rules are going to
    have on our capital markets, but I do want to focus on that 65
    percent rule. You apply it to publicly traded borrowers, but
    what about mutual funds and pension plans like California
    Public Employees' Retirement System (CalPERS)? Is there any
    reason they would not get the 65 percent rate?
        Mr. Barr. We are looking at comments on all of these issues
    with respect to the proposal. We received very helpful comments
    on credit risk, including the issues you raised with respect to
    pension funds and mutual funds.
        Mr. Sherman. Can you assure me that you will treat clean
    energy tax credits just as we currently treat low-income
    housing tax credits?
        Mr. Barr. We got very helpful comments on the tax credit
    provision, pointing out, for example, that the return to the
    investor is not based on the equity investment but really on
    the tax credit return. So that is a useful piece of information
    for us as we are thinking about these rules.
        Mr. Sherman. I would hope that you would design these rules
    so that banks will lend money to small businesses rather than
    simply put their money in highly risky, long-term bonds sold on
    Wall Street, and I yield back.
        Chairman McHenry. The gentleman yields back. We will now go
    to the gentleman from Oklahoma, Mr. Lucas, for 5 minutes.
        Mr. Lucas. Thank you, Mr. Chairman. There are certainly
    many issues that deserve our attention today. It has been
    concerning to hear that the report on the severity of the
    cultural issues at the FDIC and workplace problems at the chair
    level. From the report, it appears that repairing this
    situation will be an all-consuming task. If this same activity
    had occurred at a financial institution by a bank executive, I
    could only imagine how the response would be dramatically and
    very different. Confidence in our banking regulators matters;
    leadership matters.
        In addition to the top-down cultural overhaul, there are
    many important policy issues that the FDIC must be focused on
    that impact all sectors of the economy. The actions of the
    banking agencies have a profound effect on the folks back home.
    One particular area of concern I focused on is the Basel
    proposal's impact on our ag and energy producers, which our
    constituents depend on to keep food and power both affordable
    and reliable. The proposal that has generated an unprecedented
    response from all sectors of the economy.
        Mr. Chairman, I would like to enter a few letters into the
    record to discuss the impact. A Joint Agricultural Trade
    Association letter, a Joint Energy Trade Association letter,
    and last a letter from the American Public Power Association
    and the National Rural Electric Cooperative Association.
        Chairman McHenry. Without objection.

        [The information referred to can be found in the appendix
    on pages 139-145.]

        Mr. Lucas. I hope you all have the opportunity to review
    these comments and others from sectors of the economy that
    typically would not be compelled to weigh in on these issues,
    which speaks to the breadth and consequences of the current
    proposal.
        Another thought along those lines, I would like to further
    underscore a consequence from the Basel Endgame proposal that
    stems from the increased capital requirements to engage in
    client clearing activities. In Dodd-Frank, Congress mandated
    central clearing as a way to reduce risk in the system.
    However, the number of banks that can clear derivatives for end
    users has reduced over time, making it more difficult to find a
    bank to offer this service and I have a real concern that the
    Basel requirements will significantly constrain the capacity of
    banks to offer central clearing. We should be careful not to
    reduce market access, particularly at the same time that the
    SEC is mandating clearing in the Treasury market. I have spoken
    with Chairman Powell, Secretary Yellen, CFTC Chairman Brennan
    about this issue, and they have all assured me that this is an
    area they are following closely.
        First to Chairman Gruenberg and then to Vice Chairman Barr,
    clearing is a risk-reducing function for the market, but the
    Endgame proposal actively penalizes that activity. How do you
    reconcile this policy contradiction?
        Mr. Gruenberg. Thank you, Congressman. That is one of the
    key issues in the report. Clearing derivatives was a major
    focus of attention during the 2008 financial crisis and has
    been a focus of attention in the Basel capital accord. We have
    received a lot of comments on this issue. I acknowledge the
    points you are raising. This is still a work in progress, as
    Vice Chairman Barr has indicated. We are taking careful
    attention to all of the comments we received, including in
    regard to this.
        Mr. Lucas. Vice Chairman?
        Mr. Barr. We are taking those comments very seriously. I
    agree with you that central clearing is an important way that
    we reduce risks in the financial system. We have received
    comments on client-cleared derivatives in a number of areas of
    the proposal, and we are taking those quite seriously.
        Mr. Lucas. I believe your agencies have a responsibility to
    ensure that bank capital standards do not unnecessarily
    discourage central clearing. Market participants on the
    clearing side and the end-user side are warning us of what is
    to come. Again, I urge a complete re-proposal here. Make the
    material changes necessary and then allow Congress and the
    public to weigh in. The consequences of getting this wrong are
    too severe.
        Now, in my remaining time, another issue: I have heard
    concerns about is the FDIC's Corporate Governance Proposal--The
    guidelines as proposed would be a significant departure from
    existing practices. The proposal is aimed at banks with much
    lower asset size than the corporate governance regimes at Fed
    and OCC are so far more prescriptive. Board of directors play
    an essential leadership role for a bank and should be held to a
    high standard. Chair Gruenberg, could you elaborate on this and
    clarify if it is a high priority of yours to ensure the
    proposal is in line with the OCC and Fed?
        Mr. Gruenberg. Thank you, Congressman. It is a proposal for
    comment. We are receiving comment in that proposal. We indeed
    indicated that institutions over $10 billion would be subject
    under the proposal. We did consult with the standards used by
    the Federal Reserve and the OCC, which set a $50 billion
    standard. We are receiving comment on that, and that is
    something we are paying attention to.
        Mr. Lucas. My time has expired, Mr. Chairman. Thank you.
        Chairman McHenry. The gentleman from New York, Mr. Meeks,
    is recognized for 5 minutes.
        Mr. Meeks. Thank you, Mr. Chairman, I kind of agree with
    Mr. Sherman. I wish I had another opportunity to have two
    phases of this. I would love to talk about some of the
    substance of the economy, but as I sit here right now, if I am
    going to be honest, I am pissed off. I heard people talk about
    upset, appalled, but I am pissed off. That is my language and
    where I come from and I am pissed off because of the very idea
    that employees suffered from racial and gender discrimination,
    bullying, mistreatment, and harassment at the FDIC for years.
    As I see in the report, not a single one resulted in a removal,
    reductions in pay grade, or any discipline more serious than a
    mere suspension. That is who I am.
        I have advocated for workers, I have advocated for
    diversity, equity and inclusion my entire career. So I cannot
    sit up here and say that I am all right with it because I am
    not. It concerns me greatly. If it was me in my office, I would
    probably be run out. I do not understand. Maybe you can tell
    me, how can trust and credibility come back to that Agency for
    all of the workers that were denied and people who may want to
    work at the FDIC? How can that trust and credibility be
    returned under current leadership?
        Mr. Gruenberg. Thank you, Congressman. We are devoting all
    the resources of the Agency and engaging employees across the
    Agency in addressing this issue. There is no, if I may say, no
    higher priority at the FDIC.
        Mr. Meeks. Why was something not done? When did you find
    out about this report? When did you find out? When was the
    first time did you find out about the special committee's
    report that was revealed on November 21, 2023?
        Mr. Gruenberg. You are referring to news articles last
    year. The special report was just released about a week ago.
        Mr. Meeks. Right. The news articles were there for the
    investigation to take place. Was that the first time you heard
    about harassment or anything of that nature?
        Mr. Gruenberg. For the deep-seated workplace culture issues
    identified, they were in those news reports. I immediately
    directed the third-party review to get an Agency-wide
    assessment from an independent source to understand the nature
    of the challenge we were facing and what we needed to do and
    that report was released last week, and it has given us, if I
    may say, a line of sight into the nature of the issue that we
    have not had before.
        Mr. Meeks. What I do not understand is, number one, how it
    could take place for all the years that it took place and
    admittedly you were not the chairman the whole time, but you
    have been there forever. I would think that if someone saw that
    type of harassment, those types of activities taking place,
    somebody should stand up, especially if you are in a leadership
    position, and say something and I believe I do have the
    responsibility of holding everybody that comes before us in
    accountability.
        Let me ask Mr. Hsu and I believe Mr. Jonathan McKernan was
    co-chairs of the special committee. That is correct?
        Mr. Hsu. Correct.
        Mr. Meeks. I heard you say in that report, there is a
    report about some of the specific emotions, I will say, the
    loudness or conduct of Chairman Gruenberg. Is that correct?
        Mr. Hsu. The report cites 10 root causes of all of the
    issues that are deeply disturbing. Chairman Gruenberg was not
    cited as one of those root causes. There are a lot of causes,
    and they all require work. They require an enormous amount of
    cultural and structural transformation.
        Mr. Meeks. Let me just clear one at a time. Do you think
    that the current leadership can restore trust and credibility
    at the FDIC?
        Mr. Hsu. I do.
        Mr. Meeks. Let me ask you this question. Do you think that
    the three women that was added onto this committee were added
    to the committee enough times that they have meaningful
    participation in the committee's works?
        Mr. Hsu. I do.
        Mr. Meeks. I yield back the balance of my time.
        Chairman McHenry. The gentleman from Texas, Mr. Sessions,
    is recognized for 5 minutes.
        Mr. Sessions. Mr. Chairman, thank you very much. Gentlemen,
    I have on my door in Waco, Texas, our district headquarters:
    ``When leaders sell ambiguity, it dismisses the role of
    leadership.'' I think you guys sell ambiguity. I think all
    three of you sell ambiguity. Mr. Hsu, were you aware that in
    July 2020, a report found that the FDIC had not established an
    adequate sexual harassment prevention policy?
        Mr. Hsu. If you are referring to the FDIC Office of
    Inspector General (OIG) report, yes, I am aware.
        Mr. Sessions. I am.
        Mr. Hsu. Yes.
        Mr. Sessions. Why did you try and parse the words about
    which month this was and whether it was just the other day or
    not? Just in the conversation you had with Mr. Meeks, you
    referred to, well, 2024. You did not say 2024. You alluded to
    ``just the other day.'' You did not say just the other day. It
    became apparent that you were talking about of recent times.
        Mr. Hsu. I am sorry. I am not sure----
        Mr. Sessions. Mr. Hsu, did any of these employees that are
    presented here, did they report to your organization?
        Mr. Hsu. I am sorry. Can you repeat the question?
        Mr. Sessions. Within your line of management, did any of
    these employees that are mentioned here in this report----
        Mr. Hsu. So----
        Mr. Sessions. That is a ``yes'' or ``no'', Mr. Hsu.
        Mr. Hsu. Well, I want to make sure that I am complying with
    privacy laws.
        Mr. Sessions. Did they report within your organization?
        Mr. Hsu. I am sorry. I cannot answer this question.
        Mr. Sessions. Oh, you cannot answer that. Let me go back
    and tell you, when leaders sell ambiguity, it dismisses the
    role of leadership. I will expect for you to write us an answer
    that yes or no, that I will hold private to me, and I would
    like the chairman and the ranking member to get that also.
        Mr. Sessions. Mr. Barr, did any of the people that are
    mentioned in here report within your organization?
        Mr. Barr. My understanding is the report focuses on the
    FDIC. I do not have any information.
        Mr. Sessions. Okay. Were you aware of a July 2020 report
    from the Office of Inspector General that specifically said
    that the FDIC had not established an adequate sexual harassment
    program?
        Mr. Barr. I learned of that report not in 2020, but I am
    aware that there was such a report.
        Mr. Sessions. What year do you think you learned about this
    as a problem by the inspector general?
        Mr. Barr. At the FDIC?
        Mr. Sessions. Well, yes.
        Mr. Barr. I do not know. I mean, I learned about it at some
    point after joining the Federal Reserve Board in 2022, but I
    could not tell you exactly when. The report is about the FDIC,
    not about the Federal Reserve.
        Mr. Sessions. Have you looked at it in the context of your
    organization?
        Mr. Barr. The Federal Reserve has a very strict zero
    tolerance policy for sexual harassment and discrimination.
        Mr. Sessions. This is what I am getting at. Your
    organization had this as a very strict policy. Mr. Gruenberg,
    why did your organization not have a strict policy?
        Mr. Gruenberg. We had a policy at the time and compliance--
    --
        Mr. Sessions. A strict policy, Mr. Gruenberg.
        Mr. Gruenberg. The Inspector General (IG) report found
    shortcomings in our policy. It had 15 recommendations that I
    believe the Agency addressed. If I may say, in retrospect----
        Mr. Sessions. That was back in 2020.
        Mr. Gruenberg. Yes, that is what I am referring to, the IG
    report from 2020.
        Mr. Session. I am. Why did you have to go and hire an
    outside firm to tell you what the IG had told you? Did you not
    want to accept what the IG had said?
        Mr. Gruenberg. I believe the Agency at the time did accept
    the findings of the report. If I may just say, Congressman,
    that 2020 report did not identify the type of deep-seated
    cultural issues that this recent report has----
        Mr. Sessions. Is that right?
        Mr. Gruenberg [continuing]. and that the news stories last
    year identified.
        Mr. Sessions. These were things then that came as a result
    of your leadership, and they were brand new.
        Mr. Gruenberg. I think the new report----
        Mr. Sessions. Now, that is what you are suggesting to me
    that was not old. This is all new.
        Mr. Gruenberg. No. If I may say, Congressman, the report
    indicates these are longstanding challenges for the Agency. I
    am simply indicating that the 2020 report did not identify the
    nature of the deep-seated cultural nature of the issues, and
    that came along later.
        Mr. Sessions. Mr. Chairman, I find this very disturbing. I
    find that there is a lot of ambiguity and lack of acceptance of
    this, and yet, I find that they openly say we will take
    responsibility. I see very little responsibility. I yield back
    my time.
        Chairman McHenry. The gentleman yields back. I will now
    recognize the gentleman from Georgia, Mr. Scott, for 5 minutes.
        Mr. Scott. Thank you, Chairman. Mr. Barr, I want to talk to
    you about this complex and complicated issue and especially the
    impact that it is going to have on two groups, our lower-income
    people and our banking system. This business of lowering the
    caps on debit card interchange fees will definitely hinder the
    banks' ability to offer low-cost and no-cost bank accounts to
    low-and moderate-income Americans. Are you aware of this, and
    what do we do about it?
        Mr. Barr. You raise an excellent point, and I have spent a
    good bit of my career focused on issues of trying to improve
    access to credit and financial services for low-and moderate-
    income people. The Regulation II requirement is a requirement
    that Congress set out for the Federal Reserve to determine that
    fees are reasonable and proportional to the costs incurred that
    are specified under the statute, and the Federal Reserve has
    made a proposal to update that rule. We have received lots of
    comments on that proposal, including the kind of comment that
    you very, I think, appropriately laid out, and we are in the
    process of thinking about those comments and deciding what to
    do next.
        Mr. Scott. I am also concerned about our small business
    owners and the incurring costs from debit card swipes on a
    regular basis. Now, as I said, this is a complex problem. It is
    something that does not need to be rushed into. I do not agree
    with it but my question to you is, if the allowable fees on
    debit card swipes are lowered, does the Fed share the bank's
    concerns? Our banks have big concerns on this, about the
    availability of low-or no-cost bank accounts for consumers, or
    are these concerns overstated?
        Mr. Barr. We have just finished the comment period, so we
    are in the process of receiving those comments. We take them
    very seriously. We are reviewing them now. I do not have an
    answer to your question yet, but those are the kinds of
    comments we will take quite seriously in the stage of the
    proposal that we are.
        Mr. Scott. Mr. Chairman, I would hope that before we move
    on anything dealing with this that we get a total understanding
    of the impact on low-income and on our small businesses because
    it is clearly complex, it is complicated, and you are rushing
    to these things unprepared, and you cause great havoc. We did
    that with Dodd-Frank and when we moved, we wanted to bail out
    the big banks first, until I raised that objection to the
    President. I said, ``President Obama, I am not voting on this
    Dodd-Frank here,'' and he said, ``why.'' I said, ``because you
    cannot solve this problem by bailing out the big banks or
    looking at it haphazardly. We have to do something about the
    homeowners who are having mortgages, combined with these high
    rates of unemployment.'' Those were the consequences of it, and
    luckily he told me to go to work and do something. We came back
    with the hardest hit. I think we probably need to do the same
    thing with this approach. I yield back, Mr. Chairman.
        Chairman McHenry. The gentleman yields back. We will now go
    to the gentleman from Florida, Mr. Posey, for 5 minutes.
        Mr. Posey. Thank you, Mr. Chairman. I would like to yield
    to the gentleman from Kentucky, Mr. Barr.
        Chairman McHenry. The gentleman yields.
        Mr. Barr of Kentucky. Thank you, Mr. Posey. Mr. Hsu, I am
    sure that you have seen the Cleary report on the toxic
    workplace at the FDIC and the temperament of your colleague,
    Mr. Gruenberg. Keeping in mind that you have a duty to be
    truthful to Congress, can you testify whether there have been
    any occasions in which Mr. Gruenberg has directed anger and ill
    temperament toward you, including in discussion on the 2021
    effort by Mr. Gruenberg and Mr. Chopra related to the Bank
    Merger Act?
        Mr. Hsu. No, not anger. Passion, yes, but not anger.
        Mr. Barr of Kentucky. So you would describe the heated
    conversation that you had in 2021 related to the Bank Merger
    Act as passionate, heated, but not ill tempered?
        Mr. Hsu. Correct.
        Mr. Barr of Kentucky. You have said that you think Mr.
    Gruenberg is capable of resolving these issues despite what you
    have witnessed. One of the six factors, or capital adequacy,
    asset quality, management, earnings, liquidity and sensitivity
    to market risk (CAMELS) ratings, that bank supervisory
    authorities use to rate financial institutions is the quality
    of management. If the OCC were to uncover the kind of
    misconduct identified at the FDIC in the Cleary report at one
    of your own OCC-regulated banks, what rating would the OCC give
    to that bank's management on a 1 to 5 scale, with 1 indicating
    the strongest performance and 5 indicating the weakest?
        Mr. Hsu. So the rating is a function of a lot of parts of
    the assessment, so it really depends on the nature of the
    weakness, how material it is to the safety and soundness of
    the----
        Mr. Barr of Kentucky. You know what I am getting at, Mr.
    Acting Comptroller: toxic workplace, harassment, sexual
    harassment, discrimination, interpersonal misconduct replete in
    the report at the FDIC. If one of your examiners found that at
    a national bank, how would you rate that management of that
    bank?
        Mr. Hsu. We would rate it accordingly.
        Mr. Barr of Kentucky. What does that mean? A matter
    requiring attention?
        Mr. Hsu. It depends on the severity and the specifics of
    the----
        Mr. Barr of Kentucky. Well, I am talking about this kind of
    severity.
        Mr. Hsu. This is severe. I agree this is severe.
        Mr. Barr of Kentucky. Mr. Barr, 97 percent of the almost
    400 comments on the Basel III Endgame proposal were opposed to
    or expressed concerns, with 86 percent of negative comments
    coming from outside the banking sector. You have stated
    publicly and privately to me that the public will be able to
    comment on the Quantitative Impact Study (QIS). Given the
    overwhelmingly negative comments from the proposal from various
    parts of the ideological spectrum from across the country and
    various industries, why is there even a question whether or not
    the proposal should be withdrawn in full?
        Mr. Barr. Thank you, Congressman Barr. We are looking right
    now at the substance of what we think about the comments. As I
    have suggested to you on numerous occasions, we got good, deep
    substantive comments. I expect we are going to make broad and
    material changes across all three areas of the proposal,
    operational risk, credit risk, and market risk. Once we decide
    on what we think the appropriate substance is, we will turn to
    the question of what the appropriate process is. We have not
    gotten there yet.
        Mr. Barr of Kentucky. I appreciate that and I appreciate
    the fact that the Fed is open to those broad material changes,
    but to follow on Mr. Hill's excellent line of questioning the
    case law in the administrative law area is pretty clear.
    Broadened material changes require withdraw and re-proposal
    under the law. Again, why is there any question whether or not
    there would be a withdrawal and re-proposal giving commenters
    the ability to comment on the new proposal, the re-proposal?
        Mr. Barr. Congressman, as I said, we will follow the law.
    We will follow the Administrative Procedures Act. There is no
    question about that. We just have not turned to the procedural
    question yet. We are focused right now on the substance.
        Mr. Barr of Kentucky. Thank you for your commitment to
    allow for comment on the QIS. What is the timeline on the
    release of the QIS?
        Mr. Barr. Staff are working diligently on that. They are in
    the process of quality control and review. It will be
    relatively soon.
        Mr. Barr of Kentucky. Thank you. Mr. Barr, one final
    question, and I know you have worked really hard on this, and
    you and I have gone back and forth but one thing I am concerned
    about is that the proposal will likely raise capital
    requirements for U.S. financial institutions by more than 20
    percent. There is evidence that in the EU and the UK,
    implementation of the Basel III Endgame proposal would be at a
    much lower calibration, closer to a 5 to 7 percent increase.
    Are you concerned about the gold plating here in the United
    States putting our institutions at a competitive disadvantage?
        Mr. Barr. We are looking at all the comments we received on
    this, including on this question of gold plating. I would say
    at a much higher level, Congressman, it has been my experience
    that having very strong capital requirements in the United
    States has been to a competitive advantage to our firms, who
    are thriving in the marketplace.
        Mr. Barr of Kentucky. My time has expired, but remember,
    the objective of Basel III Endgame was harmonization. With
    that, I yield back.
        Chairman McHenry. The gentleman from Connecticut, Mr.
    Himes, is recognized for 5 minutes.
        Mr. Himes. Thank you, Mr. Chairman, and thank you to our
    witnesses for being here. Chair Gruenberg, I despise these
    congressional pylons for a couple of reasons: Number one, I
    have always very much enjoyed the working relationship we have
    had in crafting regulation. Number two, the high dudgeon and
    moral outrage we show up here suggests that we are great
    managers and excellent at taking responsibility or do not have
    feet of clay, and there is no evidence for any of that, but we
    are charged with oversight.
        I have read the report, and I have a particularly difficult
    time with the sexual harassment part of it. I grew up with a
    single mom and two sisters and have two daughters and see every
    day the challenges that women face in the industry and around.
    So I have a really hard time with some of what we see there. I
    guess my question for you, sir, is your opening statement here,
    you say that when news reports of harassment first surfaced
    last year, were you completely unaware for the 10 years prior
    of these allegations, these many allegations?
        Mr. Gruenberg. Thank you, Congressman. I was aware of cases
    being brought under our normal processes, but the kind of deep-
    seated cultural issues identified in the news reports last year
    and in the report that was recently released did not come to
    light, and as I indicated, I view that as a failure on my part.
    I simply did not identify the deep-seated cultural issues that
    were revealed in the news reports and in this recent report. I
    will say, once those reports came forward, we have devoted all
    the resources of the Agency since that time to addressing this
    issue.
        Mr. Himes. I want to move on because I have other topics,
    but you have said you take full responsibility. If you were the
    skipper of a ship in the Navy or a corporate CEO, I have very
    little doubt about what would happen in those instances.
        But forget about us and forget about the lawyers. I want
    you to just take a minute because I am stumbling over this, ``I
    am the right guy to fix this thing.'' So forget about us and
    forget about the lawyers. I want you to imagine that instead of
    us, you are looking at the young woman who it was implied that
    she should be a surrogate for her boss' child, the gay man who
    felt he had to hide his preferences because he was called a
    little girl, the women who got photos of genitals. I want you
    to imagine that we are those people and just take a minute and
    tell us, not us, but those people why you are the right leader
    to lead these critical reforms.
        Mr. Gruenberg. Thank you, Congressman. I have indeed met
    with some of the people you are describing. I understand keenly
    the hurt they feel, the impact these kinds of experiences have,
    and it is why I am totally committed and I believe the Agency
    is totally committed. We have been working on this now for
    several months. I believe we are making progress. I think we
    have been informed by the new report. We are already
    implementing the recommendations of the new report. We can
    address this issue, and I think it is critical to move forward
    and address the issues that have been identified, and we have
    an opportunity to do that.
        Mr. Himes. Chairman, I do not know how that works for them.
    I would just ask you to sit with them and persuade them that
    you are the right leader, and if they are not persuaded, we do
    not matter. There is more than a whiff of politics up here
    right now. We do not matter if they are not persuaded. I hope
    you will do the right thing.
        Vice Chairman Barr, I look forward to the moment when I do
    not have to constantly be thinking, emailing, and talking about
    Basel III Endgame. When are we going to finalize that process?
        Mr. Barr. Thank you very much, Congressman. Right now, as I
    mentioned, we got lots of comments. They were deeply
    substantive. We are working our way through that substance. We
    have made good progress. You have heard me say, you have heard
    Chair Powell say we are expecting we will make broad and
    material changes to the rule. I expect those to occur across
    all three areas--operational risk, credit risk, and market
    risk. We need to work through that substance, finish working
    through that substance, turn to the question of what the right
    process is but, we are not on a timetable that is dictated by
    anything other than getting it right.
        Mr. Himes. Okay. Okay. Great. I will just make the point we
    have talked about this a lot. I desperately want to be on your
    side. I came here in the first quarter of 2009. I spend a lot
    of time worrying about a world where Citibank goes belly up. I
    want to be on your side, but as I have said a whole bunch of
    times, I really need to understand the analysis underlying the
    call for additional capital standards. If I get that and if it
    is persuasive, I will be there, but I just need to get that.
    With that, Mr. Chairman, I will yield back.
        Chairman McHenry. The gentleman from Missouri, Mr.
    Luetkemeyer, is now recognized for 5 minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman. This is a very
    deeply disturbing moment to me from the standpoint as a former
    bank examiner with the State of Missouri for a couple of years
    and having gone to the FDIC school when I was an examiner. Of
    course, I did not go there when it was the FDIC Hotel, as
    reported by this report this morning. While I have deep respect
    for the FDIC from the standpoint I have worked with the
    examiners both as an examiner and as a banker, but this report
    along with the long tenure of Mr. Gruenberg leaves a lot to be
    desired, is very concerning.
        Let us just start with it. An independent third-party
    report, 167 interviews, or 10 percent of the people, roughly,
    complained of abusive treatment. Things like gender and race
    discrimination are documented, as Mr. Meeks indicated this
    morning. We got anger management issues with the management of
    the Agency. We have field officers that are in fear of
    reporting for fear of retaliation. How in the world can people
    do their work if they are fearful of being able to report what
    is actually going on? It cannot happen.
        We have promotions within the Agency based on the club that
    they are in, which is nepotism. That cannot be tolerated. The
    new report indicated that the FDIC's Seidman Center--in the
    Wall Street Journal article, the FDIC Hotel--there are 24
    instances of intoxication, misconduct occurred, two sexual
    harassment and one rape--two sexual harassment and one rape--
    within the FDIC Hotel. Now, this morning, we hear from your
    testimony, Mr. Gruenberg, that you indicate that it just
    surfaced a little while back and you just learned of it then of
    the depth of this. Sir, there ware 92 harassment claims
    according to the report 92. You have to be either totally
    incompetent or not caring, allow it to go on and be a
    facilitator of all this activity. Zero resulted in removal,
    zero resulted in reduction of pay, and no discipline more
    serious than a suspension or a transfer occurred. Unbelievable.
    That is facilitation in its purest form.
        Now, one of the things that is going to happen here, we are
    going to try and make sure that Ms. McWilliams, who was interim
    between your two terms, is also a fall guy in this, and the
    report says nothing about that. In fact, it speaks pretty
    glowingly about her. ``Within just 3 months of your departure,
    sir, your successor built enough trust with employees that they
    felt they could share their stories, and she began to work on
    the FDIC's culture problems.'' They actually are supportive of
    what she was doing.'' So the report talks about discrimination,
    gender and race, sexual harassment, nepotism, and your anger
    management issues, but we know some more, sir. I have been here
    a long time. This is my 14th year on this committee, okay,
    which is a long time. I also know that you lied to me, you lied
    to the chairman, you lied to this committee about Operation
    Choke Point, and it took an email where we found you involved
    before we confronted you. You admitted in my office that you
    were involved in this, and it stopped. Since then, since your
    new term, you have been involved in it again. Remember the ATM
    operation? Either you or your individual person was here, along
    with your three representatives, and also admitted wrongdoing
    there.
        But also, there is weak management from the standpoint of
    regulation--that is what your job really is--as evidenced by
    the three banks that failed last year. As a bank examiner,
    there is no way in the world I would have allowed the bank
    model of those three banks to exist. Eighty to 95 percent
    insured deposits. Are you kidding me? No way. You knew about it
    for a year, did nothing? In doing that, you endangered not only
    the viability of those banks, but the viability of our system
    because what happened, they went down. Runs were started on
    other banks around the country. I got phone calls from
    everybody, all sorts of bankers worried about what is going to
    happen all because of the lax management and a lack of
    regulation.
        Mr. Hsu, you are part of the problem as well. You and
    Chopra and Gruenberg were the three that went in behind
    McWilliams' back and tried to do something about this bank
    merger situation and managed to oust her. Shame on you guys.
    Mr. Gruenberg, you have become the Michael Cohen and Harvey
    Weinstein of the FDIC, and you need to go. If you have the
    decency, please step down. If not, I would urge the President
    of the United States to replace you ASAP, and with that, Mr.
    Chairman, I yield back.
        Chairman McHenry. The gentleman yields back. The gentleman
    from Illinois, the ranking member of the Financial Institutions
    Subcommittee, Mr. Foster, is recognized for 5 minutes.
        Mr. Foster. Thank you, Mr. Chairman. Acting Comptroller
    Hsu, last Friday, the FSOC issued a report on nonbank mortgage
    servicing and in your statement following your vote to approve
    that report, you stated that the report identifies important
    financial stability concerns that need to be addressed by
    Congress and the press release announcing the report notes that
    in 2022, nonbank mortgage companies originated approximately
    two-thirds of mortgages in the United States and owned the
    servicing rights on 54 percent.
        I came in March 2008, and so I spent a lot of the first
    years cleaning up the mess of an under-regulated mortgage
    industry and then looking at the damage that did to families in
    America and this report notes the benefits of this trend, such
    as supporting lending to historically underserved communities
    but also the risks that are associated with it. Could you speak
    a little bit about some of the risks associated with
    concentration in this space and other dangers?
        Mr. Hsu. Thank you for the question, Congressman. As the
    report noted, today's mortgage servicing is concentrated in a
    relatively small number of nonbank mortgage servicers, and
    there are certain fragilities that come with that. So if there
    are disruptions to those services, that could have impact on
    many, many people.
        Mr. Foster. Yes. Could you be a little more specific? I
    mean, what is the scale of this concern? Would it have
    implications for the Government-Sponsored Enterprises (GSEs):
    Fannie, Freddie, Ginnie Mac? What would the contagion look like
    in this area that would be a source for potential worry?
        Mr. Hsu. So it depends on the nature of the problem that
    manifests, but as you pointed out, there are strong connections
    with the GSEs with regards to these mortgage servicers, and, of
    course, the GSEs are then connected to the banking system. So
    the potential for widespread contagion from issues or problems
    at the nonbank mortgage service companies could be severe.
        Mr. Foster. Yes. Could you be a little more specific? I
    mean, what are a couple of example nightmare scenarios where
    you could have contagion?
        Mr. Hsu. A nightmare scenario. At the very extreme, there
    could be massive disruption of mortgage servicing, which would
    really impact a significant portion of the mortgage market. In
    which case, that is billions and trillions of dollars that are
    flowing through the system that would be disrupted, and that
    could have knock-on effect onto both GSEs and banks.
        Mr. Foster. Now, the report includes several
    recommendations for Congress, including providing additional
    authorities to help firms manage the risk, to promote
    information sharing between the State and Federal regulators
    which share the burden here. Can you speak a little bit about
    how those recommendations, if followed through by Congress,
    would promote financial stability?
        Mr. Hsu. Sure. One of the primary recommendations is for
    Congress to strengthen both the supervision and the framework
    around the nonbank mortgage service companies so they are held
    to a standard that enables safety and soundness in that market.
    That is the core of it. In addition to that, I think, as was
    discussed earlier, having an industry-funded fund that would
    provide liquidity as necessary in case there are liquidity
    issues at those servicers.
        Mr. Foster. So this would be like the Deposit Insurance
    Fund (DIF) or Circle liquidity? I mean, is it liquidity in the
    sense that you would pledge assets so you would expect a member
    to take a loss on this fund, or is this something where the
    industry as a whole would be responsible for replenishing the
    fund?
        Mr. Hsu. Yes, it is more of the latter, and I think the
    details of that would still need to be worked out obviously,
    but the idea is that the industry itself, the nonbank mortgage
    servicing industry, would fund it.
        Mr. Foster. Okay and so then I am immediately led back to
    Representative Hill's comment about maybe just moving this more
    back into the banks, and there already is a DIF for it, and
    trying to understand the reason for the market moving the way
    it has.
        Mr. Hsu. For any given activity, especially with mortgages,
    there is risk, and that risk has to be managed and properly
    buffered for both for capital and liquidity. We want to make
    sure that those standards are applied equally and appropriately
    wherever they take place, whether it is within the banking
    system or outside of the banking system, and the FSOC report
    really gets at that.
        Mr. Foster. Yes. Well, that----
        Mr. Hsu. We want to level up. We want to make sure that
    playing field is level and leveled up.
        Mr. Foster. Yes. I have to say that is the FSOC doing
    exactly the job that we hoped you would do to actually look
    around the corner and look holistically at the system and say,
    okay, are there things that we are going to be having hearings
    about next year after things blow up and to the extent that you
    are able to foresee and prevent those, you are doing your job
    well, so thank you, and my time is up. I yield back.
        Chairman McHenry. The gentleman from Michigan, the chair of
    the Oversight Subcommittee, Mr. Huizenga, is recognized for 5
    minutes.
        Mr. Huizenga. Thank you, Mr. Chairman. I want to clarify
    something that seems to be a well-worn path for some on the
    committee, about this report only being about you because
    Cleary Gottlieb simply did not look anywhere else. Sheila Bair
    was mentioned twice in that report, one referencing the
    cultural change she started after a 2008 altercation that you
    had. Chair McWilliams was referenced 4 times, referencing her
    attempts to improve the culture, including creating TEAM FDIC,
    which stands for Transparency, Empowerment, Accountability, and
    Mission, to implement a ground-up opportunity for FDIC
    employees to get involved, cleaning up your mess once again.
    Cleary Gottlieb had said in their briefing to the committee
    that if there was any negative or derogatory information on any
    of the chairs, they would have included it. They were silent
    because those two women were cleaning up your mess, sir.
        Now look, we all know the FDIC plays a critical role in our
    financial system. Your job as chair is to maintain that
    stability in the system. You had earlier said to the chairman
    that your staff regularly briefs you on bank policy or issues
    related to banks and that sometimes that bad news is regarding
    bank failures. What we learned, though, in our own
    investigation as a committee--we did dozens of transcribed
    interviews and had dozens of whistleblowers that came forward
    outside of Cleary--we learned that in our own investigation
    that senior advisors actively prepared and coached their staff
    before briefing you, warning them about your behavior. Did you
    know that? Yes or no. Do not thank me for the question. Yes or
    no.
        Mr. Gruenberg. No, Congressman.
        Mr. Huizenga. You did not? Okay. Your staff also shared
    stories during their interviews that FDIC staff had been known
    to cry after leaving meetings with you and that others
    described having to comfort colleagues after interacting with
    you. No such stories were documented about either Chair Bair or
    Chair McWilliams. Cleary Gottlieb found staffers fret and, from
    the report, ``delayed delivering news that they feared would
    upset you and your reactions, and did have a chilling effect on
    open communications.''
        So let me be very clear. If your staffs are so afraid to
    give you bad news and they delay telling you that news, it
    simply makes a bad situation even worse. Sir, you are the wrong
    person for the job to clean up this mess. The mission of the
    FDIC is far too important, and you are unwilling or unable to
    accept negative information. Any delay of information getting
    to the chairman of the FDIC is a recipe for disaster. If you
    cannot deal with bad news, you are the wrong person for this
    job.
        I want to hit on one other important point. Last time, Mr.
    Gruenberg, you were before the committee, you were asked
    directly by the chair if you had ever been a subject of an
    investigation. You said no. Then after some self-reflection
    during a break for votes and I believe a call from a reporter,
    you admitted that you actually had. Just like you did today,
    you were parsing your words. Cleary Gottlieb's report explained
    that the 2008 incident, where you made a senior executive feel
    personally attacked, the report alleges that the staff felt
    embarrassed and humiliated and that you created a hostile
    environment.
        Mr. Chairman, I would like to include a redacted copy of
    that 2008 management inquiry into the record.
        Chairman McHenry. Without objection.

        [The information referred to was not submitted prior to
    printing.]

        Mr. Huizenga. That person was Arleas Upton Kea while you
    were vice chairman at the time, and recently you just named an
    FDIC Chairman's Award for Operational Excellence after Ms. Kea,
    Upton Kea. So you named an award after the same woman who you
    screamed at and the same woman who accused you of withholding
    information for being disloyal to you. Sir, I certainly hope
    this is not some sick ruse to buy her silence.
        I am going to use your own opening statement to close mine.
    On page 2, you said, ``This misconduct first surfaced last
    year.'' That is simply not true. This had been out there as
    rumors and innuendo and many other complaints, but you also say
    you regret not having identified deeper cultural issues at FDIC
    sooner. Sir, you created the culture. You created the culture
    there, and you are the wrong person for the job, and you finish
    on page 3, going on to page 4. The three core elements of your
    action plan provide more support for victims is your first
    point; number two, strengthening process for reporting and
    investigating complaints; number three, improving
    accountability for anyone who is found to engage in misconduct,
    including through separation from the Agency. How can this not
    be you, sir? You are the wrong person for the job, and I yield
    back.
        Chairman McHenry. The gentlewoman from Ohio, Mrs. Beatty,
    is now recognized for 5 minutes.
        Mrs. Beatty. Thank you, Mr. Chairman and ranking member and
    to our witnesses here today.
        I am not sure where to begin. I have sat here and listened
    to my colleagues on both sides of the aisle, and I agree with a
    lot that has been said on both sides of the aisle. As a Black
    woman, as someone--when Congressman Himes asked you to reflect
    on talking to those individuals and especially women, I was
    sitting here thinking how I would feel and then I reviewed
    again the massive report and the executive summary of the FDIC
    report. I am not going to go through it because much has been
    said and rightly so. This is troubling. It is a longstanding
    culture of sexual harassment and misconduct.
        I do not know where to start with the blame, but this did
    not just happen now. If you go to the middle of the report,
    which I have spent many hours, along with my legal counsel and
    staff here going through this, the report says this has been
    going on for years. Now, I am not going to maybe accept whether
    it was William or Bair cleaning it up. I think all of you are
    at fault. I think everybody that sat in that seat has to take
    some ownership. I do not know what they tried to clean up, nor
    you, but I do not make it just this watch. I am so bothered
    that the three of you to me share in this because this is
    massive. If we go to the middle of that 300, 400 report, there
    were some 510 hotline reports. I think it is important to us.
    So 97 individuals reported 145 separate incidents of sexual
    harassment, unwelcome sexual advances. Ninety-one individuals
    reported 141 separate occasions of gender and sexuality-based
    discrimination. A hundred and eighty-seven individuals reported
    320 separate incidents of workplace bullying, threat, and
    verbal abuse. This is not small.
        Now, I do welcome the fact that you accepted
    responsibility, that you have put a plan together, but I guess
    I am curious. Are we going to go back and look at all these
    things? Where is the accountability? Was somebody terminated?
    Will people go back as a result of this and be terminated?
    While that will not repair what has happened to some of these
    individuals. For a female employee to be touched or to have to
    watch videos, to be asked to carry a child, that is not
    something that this Congress would accept.
        This is not a Democrat or Republican, but I want to be fair
    on both sides. It is not you just as a leader with this
    administration who should be admonished. Everybody should be
    admonished and I guess what I want to hear is let us open up
    Pandora's box, let us go look at all those managers. It is from
    the top down but there are a whole lot of people that are
    getting a pass today while we are beating the heck out of you.
    A whole lot of people should be sitting with you and behind you
    who should also carry in this blame. So I do not want anyone to
    think--because I am all about putting people over politics,
    people over politics, and that is what I stand for, and I know
    my colleagues here do as well. So I just wanted to enter into
    the record, I do not think I have a question, but I want you
    and all those who report under you--you should not carry this
    burden alone.
        Now, you should [inaudible], and everything that has been
    said on both sides of the aisle you are going to have to
    weather because we have it here before us, but I am suggesting
    that you go back. A whole lot of other folks need to be
    responding to the questions that my colleagues are asking to
    help at least show that we care about all of these individuals
    that have had to have been exposed to this. Mr. Chairman, I
    yield back.
        Chairman McHenry. The gentlelady from Missouri, the chair
    of the Capital Markets Subcommittee, Mrs. Wagner, is recognized
    for 5 minutes.
        Mrs. Wagner. Thank you, Mr. Chairman. Chairman Gruenberg,
    you have been at the FDIC for 19 years, leading it mostly for
    10 of those years. During that time, you apparently never once
    took it upon yourself to look into the toxic workplace that you
    are leading, that is until the Wall Street Journal published
    articles detailing your ill temper and inappropriate behavior
    toward FDIC employees. After your reputation was put at risk,
    then and only then did you decide to work on getting your house
    in order, sir. In this report, north of 500 employees came
    forward with complaints of sexual harassment, discrimination,
    and other workplace misconduct. This is a massive number, and
    it is only scratching the surface. For context, you have over
    5,000 employees, the FDIC, today.
        A quick answer to these questions, sir. Chairman Gruenberg,
    how often do you get out of DC and visit FDIC regional and
    field offices?
        Mr. Gruenberg. We have six regional offices around the
    country, Congresswoman. I try to visit each regional office at
    least once a year.
        Mrs. Wagner. One time a year, and the field offices?
        Mr. Gruenberg. Generally, not field. We have 70 field
    offices----
        Mrs. Wagner. So you do not go to the 70 field offices. Once
    a year you go to the six regional. Sorry. Do you meet with the
    employees, rank-and-file employees, when you have those once-a-
    year visits?
        Mr. Gruenberg. Yes, I do.
        Mrs. Wagner. Did it ever once occur to you that something
    highly inappropriate was going on at these offices?
        Mr. Gruenberg. The kind of deep-seated workplace culture
    did not come through in those visits.
        Mrs. Wagner. You got to be kidding me.
        Mr. Gruenberg. No.
        Mrs. Wagner. Why? How could you not know? You have been
    there on the Board 19 years, and you are telling me that you
    have never heard a single story of harassment? Sir, I remind
    you, you are under oath.
        Mr. Gruenberg. Congresswoman, I understand the question and
    why you ask it. In those visits, I met with employees, rank-
    and-file employees. It simply did not come forward.
        Mrs. Wagner. Well, this report has some of the most
    horrific H.R. abuses that I have ever read in my life. We can
    talk all day about your personal management problems, and that
    I find appalling also, but what is more concerning is the
    complete ignorance of the well-being of the employees that you
    are entrusted with leading, and the fact that you do not even
    visit or talk to them. Once a year to six regional offices,
    never to one of the 70 field offices. Your employees have lost
    confidence in you, sir. I have lost confidence in you, and
    Congress has lost confidence in you. You sir, should be fired.
    Not resign. Fired.
        Mr. Chairman, I ask unanimous consent to enter into the
    record a letter from the Independent Women's Forum and the
    Independent Women's Voice requesting Chair Gruenberg's
    resignation.
        Chairman McHenry. Without objection.

        [The information referred to was not submitted prior to
    printing.]

        Mrs. Wagner. Mr. Hsu, your report identified--these are all
    quotes, Mr. Hsu--``patriarchal, insular, toxic boys club
    culture,'' where there was, ``widespread fear of retaliation,''
    and where ``management's response to allegations of misconduct
    as well as culture and conditions that gave rise to them had
    been insufficient and ineffective.'' The report found that
    cultural and structural changes were necessary. Mr. Gruenberg
    has been on the FDIC Board for 19 years and been the patriarch
    for 10 of those years. In those 10 years of leadership, has he
    failed to address these important workplace conditions and what
    makes you believe he remains qualified to implement the
    necessary cultural and structural changes outlined in your
    report?
        Mr. Hsu. As the report notes, what is needed for effective
    leadership of the Agency at this time is leadership that
    empathizes and fully recognizes all of the problems----
        Mrs. Wagner. Okay. I do not need a regurgitation. Mr. Hsu,
    your own report states, ``Chairman Gruenberg's reputation
    raises questions about the credibility of the leadership's
    response to the crisis and the moral authority to lead the
    cultural transformation.'' Do you now renounce the findings of
    your own report, sir?
        Mr. Hsu. No, I accept those findings. I fully accept those
    findings.
        Mrs. Wagner. Then how on earth do you believe that Mr.
    Gruenberg can lead this Agency into a new and better day in
    culture?
        Mr. Hsu. I believe Mr. Gruenberg has taken full
    responsibility for all----
        Mrs. Wagner. No, he has not. He does not even visit the
    agencies. He was not aware of one single harassment report. My
    time has expired. I have questions for you too, Vice Chair
    Barr, but I will submit those in writing. I yield back.
        Chairman McHenry. The gentleman from Massachusetts, Mr.
    Lynch, is now recognized for 5 minutes.
        Mr. Lynch. Thank you, Mr. Chairman. I came out of the
    building trade. I was an iron worker for about 20 years, and it
    is a rough-and-tumble workplace. We work hard. We play hard. I
    get that but Mr. Gruenberg, this report makes the iron workers
    look like boy scouts compared to what was going on at the FDIC.
    Now, rather than using all my time to recount the parade of
    horribles here and outrageous conduct on the part of FDIC
    employees, I am going to ask you: People have spent their time
    railing at you, and you are not getting a chance to tell us
    what is the plan here. This cannot continue.
        I got to tell you, as a former foreman and a general
    foreman, I would have fired a whole bunch of people at the
    FDIC. I would have just fired them flat out, and you need to
    fire some people if you are going to clean this up. I mean, you
    do not treat women like this. You do not treat humans like
    this, whether they are women or people of color or lesbian,
    gay, bisexual, transgender, and queer or questioning (LGBTQ)
    kids. I saw an interchange there, where they were handled
    really poorly. What is your plan? What is your plan going
    forward? What are you going to do here to straighten this mess
    out? You say you are the guy to do it.
        Mr. Gruenberg. Yes.
        Mr. Lynch. Tell me about that.
        Mr. Gruenberg. Fundamentally, we got to break the good old
    boys' network that is at the core of the report, protecting
    each other and providing an obstacle to employees coming
    forward to report a piece of experiences. We have to break
    that. The report says----
        Mr. Lynch. Are you going to fire anybody, or have you fired
    anybody here?
        Mr. Gruenberg. We have separated four employees this year
    who have engaged in misconduct, and we have----
        Mr. Lynch. Separated? What is that? Did you fire them or
    did you reassign them?
        Mr. Gruenberg. Have rather received termination notices and
    were fired or they have been informed about disciplinary
    action. Before the disciplinary action takes place, they leave
    the Agency or retire.
        Mr. Lynch. How many people have you fired?
        Mr. Gruenberg. Four separated this year.
        Mr. Lynch. Sounds like you need to fire more people on
    that. I am just reading this record. Four people did not do all
    this. A lot of people did this.
        Mr. Gruenberg. I agree with that.
        Mr. Lynch. Go ahead.
        Mr. Gruenberg. I agree with that.
        Mr. Lynch. Go ahead. What else?
        Mr. Gruenberg. We need, as the report recommends,
    fundamental structural change to break the network, which is
    why we are proposing setting up a new independent office
    outside of the organizational structure of the Agency where we
    would consolidate all of the misconduct responsibilities for
    the reporting of complaints, for the investigation of
    complaints, utilizing independent third parties to do
    investigations, and for disciplining misconduct when it occurs.
    That----
        Mr. Lynch. All right. Look----
        Mr. Gruenberg. And it would report directly to the Board of
    Directors.
        Mr. Lynch. All right. Okay. We need to be informed. We need
    reports every couple of weeks on who you are firing and the
    changes that you have made. You are on a short leash. A lot of
    people here would like to see you gone, to be honest with you.
    I am not so sure you are the guy to make the changes, but maybe
    you are. Maybe you can prove that to us. I do not know. I do
    not know. It will take some doing, but things have to change
    there.
        Mr. Hsu, I would like to talk about financial services at
    some point here. Tokenization, I know you just had a symposium
    on that. I am the ranking Democrat on Digital Currencies. I
    have a question. Is it possible to tokenize any security?
        Mr. Hsu. It depends on how that term is being used. Now
    here, I think we have to be very, very careful----
        Mr. Lynch. Which term? ``Tokenization'' or ``security?''
        Mr. Hsu. No, tokenization.
        Mr. Lynch. Okay.
        Mr. Hsu. Some people are using that term very loosely, and
    I would caution against that because for tokenization to solve
    the underlying problem of settlement, it has to be fully
    aligned with the legal system. So you have to solve not just
    the technological problem. You have to solve the underlying who
    owns it, how do you transfer ownership, how do you do risk
    management, and that is the right way to approach it. That is
    the symposium that we held was to tackle all of those
    questions. There are folks out there talking about
    tokenization. We are only talking about the technology layer,
    and that is half of that.
        Mr. Lynch. Okay. My fear is that the tokenization issue,
    the technological part of it, could turn the traditional
    security system upside down. Is that a legitimate fear?
        Mr. Hsu. That is a possibility if it is not done correctly.
        Mr. Lynch. Okay. Okay. All right. Thank you. Mr. Chairman,
    I yield back. Thank you.
        Chairman McHenry. The gentleman from Texas, Mr. Williams,
    is recognized for 5 minutes.
        Mr. Williams of Texas. Thank you, Chairman, and before I
    begin with my questions, Mr. Gruenberg, I would like to state
    for the record that I strongly condemn your actions exposed in
    the recent report. Many of my colleagues have touched on this
    today, but this 234-page investigation detailed a very toxic
    environment in your Agency, and I am a small business owner. I
    know how that can hurt a business, and your actions and the
    actions of the individuals involved are unacceptable, and we do
    not tolerate that.
        Next, I would like to follow up a little bit what Mrs.
    Wagner said. How are we, sir, supposed to believe you are
    willing or even able to implement a culture change if you
    cannot accept responsibility for your own actions? We have
    heard that you took a tour to your regional office for
    listening sessions. Well, it is safe to say that did not go
    well either, and I have been told that at one of these
    listening sessions an employee asked you directly who their
    allies are and asked you directly, ``Who is my ally,'' and you
    responded, ``I have to get back to you.'' Well, if that answer
    is too complicated for you, I think you are the wrong person to
    lead this change, and you will get back to them. The answer
    here was pretty easy. It is, ``me, I am your ally.'' But you
    are the chairman of this Agency with a total workforce of over
    thousands of employees, and at the very least, these employees
    should feel like you are their ally.
        Now that being said, let me move on to Chairman Barr. I
    would like to begin by discussing the long-term debt proposal.
    The proposal would require a covered bank to hold debt equal to
    at least 6 percent of its risk weighted assets. This amount, 6
    percent, is far too high for regional banks given their risk
    profile. This will increase these banks' costs, and these
    increased costs will inevitably be passed down to consumers
    like me, a small business owner, without strengthening
    financial stability. Imposing such stringent requirements on
    regional banks not only stifles their ability to lend to small
    businesses and stimulate local economies, but it also
    undermines the fundamental principles of free market
    capitalism, which hinders competition, innovation within the
    financial sector.
        So, Vice Chair, how do you see the standardized 6 percent
    impacting smaller banks, and do you think there is a value in
    tailoring the percentage required based on the sizes of the
    financial institution?
        Mr. Barr. Thank you, Congressman Williams. It is a really
    critically important question. We are looking very much at the
    question of what the right calibration is for different size of
    institution. We received a lot of comments on that question. We
    are taking those very seriously. We want to have a requirement
    that improves the resiliency of the financial system and that
    also respects the diversity of our financial system, which is
    really a critical goal.
        Mr. Williams of Texas. Thank you for that. I have serious
    concerns about how the Basel III Endgame proposal is going to
    negatively impact small businesses and the institutions that
    serve them and provide for small businesses' individual needs.
    I still do not see why we cannot do it the American way, why
    they cannot follow America. This proposal will severely reduce
    financing and access to capital for small businesses, making it
    harder for them to secure funding to hire workers, maintain
    operations, and expand their operations. This could result in a
    domino effect, stifling economic growth in local communities
    where these banks are often a driver of entrepreneurship and
    businesses like mine, we go to community and local banks. As a
    consequence, the proposal risks hampering innovation and job
    creation. Businesses across this country are struggling to
    navigate this regulatory landscape and, quite frankly, handle
    the increase in burdensome requirements.
        So, Comptroller Hsu, has the OCC held discussions regarding
    the Basel III proposal with small businesses, and how have you
    taken business' concerns into account?
        Mr. Hsu. Thank you for the question. We have received quite
    a few comments from small businesses and those expressing the
    interest of small businesses and those comments, we have taken
    those all into account as part of the process, as my colleagues
    have pointed out. We are taking it very seriously. We are
    looking very closely at those.
        Mr. Williams of Texas. Okay. Very good. With that in mind,
    I yield my time back.
        Chairman McHenry. The gentleman yields his time. We will
    now recognize the gentleman from California, Mr. Vargas, for 5
    minutes.
        Mr. Vargas. Thank you very much, Mr. Chairman. I do
    apologize at the outset for my voice. I am starting to lose it.
    I know it is a bad thing for a politician, but it happens.
        I was excited today--some time ago to talk about oversight
    of the prudential regulations--regulators, I should say--and I
    was very anxious to talk about Basel III, the Endgame. I was a
    signatory to a letter that was sent to you. I do have some
    great concerns, and I also want to talk about something I am
    very aware of, and that is the climate-related risks, the
    financial risks that the system faces, and I wanted to talk
    about that. I think it is very important.
        However, obviously, we have delved into what is happening
    in FDIC. I think it is important. I would associate myself with
    everything that my good friend, Jim, said, the fine member from
    Connecticut. I have two daughters, too, and I love them more
    than life itself. To think that they would be in an
    organization where they would be harassed and that they would
    have no recourse and there would be little care for them, just
    outrageous to me as a father, as a human being. I think it is
    outrageous. What went wrong, Mr. Gruenberg? I mean, your
    department seems to be an outlier. What went wrong?
        Mr. Gruenberg. I think this is a long-term issue,
    Congressman. As the report indicates, I think it was
    particularly challenging in our field offices around the
    country. The FDIC supervises nearly 3,000 banks. We have 70
    field offices, often in remote locations and that presents
    opportunities for misconduct and challenges for oversight and
    supervision, and that has to be a focus of our attention.
        Mr. Vargas. Just to be fair, I was the vice president at
    Liberty Mutual and a lot of offices all over the place, too,
    but there was a culture that you did not put up with this crap.
    You just did not, and you have an avenue to talk to somebody
    and ultimately get to people like myself. I was in the
    corporate legal side, and we would do something about it. To
    me, I do not understand how this could have happened for so
    long.
        Mr. Gruenberg. I think that is the issue we have to
    address. This report that has come out has given us a deep line
    of sight into it, and we are going to work to address it and to
    fix it. That is the commitment we have made.
        Mr. Vargas. Okay. I do also have some serious doubts of
    your ability to do it because you have been tangled up in this.
    Your temperament and other things came out in the report. You
    were going to say something. I am going to allow you to say
    that since I did say something about you.
        Mr. Gruenberg. Sure. Only to say I take responsibility for
    that. I have committed to addressing it and to accepting the
    recommendations of the report in regard to it. We have been
    working on this for a number of months now. We are making
    progress. This new report gives us additional information, and
    we will address this----
        Mr. Vargas. I still have some doubts, but I will give you
    some time. Mr. Hsu, you have been dragged into this a bit, and,
    in fact, at one point, you pointed to a gentleman in the
    audience. I believe he is probably your attorney. Could you
    point to your attorney? I believe at one point he asked you not
    to answer a question because of some reason. Is that correct?
        Mr. Hsu. I want to be as open and honest with Congress as
    possible. I also want to follow the law.
        Mr. Vargas. That is right.
        Mr. Hsu. There are laws related to Privacy Act and others,
    where I just want to make sure I follow that. That is why I
    consulted with him.
        Mr. Vargas. I knew that, and that is why I asked you. I am
    an attorney myself, and that is why I do not want you to get
    dragged in unnecessarily. Now, there is some responsibility on
    you, too, and I want to make sure that you take that very, very
    seriously. Especially, sexual harassment, discrimination should
    not happen. I mean, I look over there at Vice Chair Barr and I
    have to say I have full confidence in him. I know we have had
    issues here on other things, but I have full confidence in him.
    I know his background, and I expect that if he had this in his
    organization, he would do something about it. I hope you have
    the same attitude as him.
        Mr. Barr, I do not have any questions for you now other
    than, again, I do want to talk later on about the Endgame. I do
    think that it makes it more difficult for people who are first-
    time homebuyers to be able to qualify for a mortgage. That is a
    big deal to me. We will talk later, obviously, about the risks
    of climate change. It is a big deal to me, but I did want to
    talk about this. I am a parent too, and I think this is an
    issue that has to be resolved. Thank you.
        Chairman McHenry. The gentleman from Georgia, Mr.
    Loudermilk, is now recognized for 5 minutes.
        Mr. Loudermilk. Well, thank you, Mr. Chairman, and thank
    you all for being here today and representing your respective
    agencies.
        It is difficult to have this conversation today, Mr.
    Gruenberg, but one thing I have noticed, it is troubling to me
    beyond just this report, and we will get in the report, is one
    of the things that our local banks, especially smaller banks,
    tell me is that at one time they felt the FDIC and other
    agencies were partners with them to help them navigate and make
    sure that they are compliant with regulation, that regulations
    made sense, and that both parties worked in the best interest
    of their customers. They no longer feel that way. They see the
    FDIC as an adversary, that they are hesitant to ask for advice
    and this is across the board with a lot of agencies, is that
    they see it as a ``gotcha'' organization looking for a reason
    to come after them, and it is especially with smaller financial
    institutions.
        So I think that is a broader issue that we have to address,
    is that our agencies should not be viewed as adversarial but in
    a partner with institutions. I believe I have been honest in
    the assessment of the FDIC over the years, both positive and
    negative. In previous hearings, I have praised some of the
    informative reports that have come out of the FDIC. However, I
    must say that I have read the Cleary Gottlieb report, and I am
    disturbed by the evidence that it presents. Mr. Gruenberg, in
    the Cleary report, you are quoted as having said that you did
    not recall specific instances where you were accused of raising
    your voice, losing your temper, or throwing objects. In your
    interviews with committee staff, you went a step further and
    said that you have never yelled at an employee or lost your
    temper. In fact, you placed the blame on others for
    misinterpreting your tone and body language.
        The Cleary report also noted that you have been unwilling
    to accept that others have experienced difficult interactions
    with you. The Cleary report draws on examples of inappropriate
    conduct dating back to 2007, nearly 20 years ago. You failed to
    accept responsibility for your behavior for nearly 20 years and
    only did so reluctantly after public scrutiny. From my
    perspective, it seems like you had no fear of being held
    accountable until you were. With these revelations, why should
    Congress, the public, and your staff trust that you will do
    better in the future?
        Mr. Gruenberg. Thank you, Congressman. As I indicated
    earlier, I accept the findings of the report. I am committed
    personally to addressing them. I am committed to implementing
    the recommendations made specifically in regard to me and our
    executives in the report, including having so-called 360
    reviews done each year. I understand that employees have
    experienced my temperament in a way that was disturbing to
    them. I accept that. That is all that matters. It does not
    matter what my perception is. It matters what their perception
    is, and I am committed to addressing that.
        Mr. Loudermilk. Well, I appreciate that. It seems like
    maybe that commitment is about 20 years past due, and I think
    that is the concern that we are having here. The Cleary report
    also noted that in a 9-year period, 92 complaints were filed,
    and only two of those complaints resulted in a suspension from
    the Agency. How can FDIC employees expect their harassers to be
    held accountable when their leader is not held accountable for
    his own appropriate behavior?
        Mr. Gruenberg. If I may just add context to that,
    Congressman. I am not challenging the information in the
    report, but just to add context, during the period cited there,
    2015 to 2023, there were actually 18 employees separated from
    the Agency, which means they received notices of termination or
    other disciplinary action. They either left the Agency because
    of termination, or, in anticipation of disciplinary action,
    they left or retired, which they have the ability to do, but
    there were actually 18 individuals separated from the Agency
    during that time.
        Mr. Loudermilk. Well, I believe, based on this report, that
    the hostile work environment at the FDIC is directly related to
    an inability to take responsibility as a leader. You failed to
    uphold the integrity of your office by doing the right thing
    even when no one was watching. Now everyone's watching, and
    unfortunately, I have no choice but to join in with some of my
    colleagues in asking for your resignation. With that, I yield
    back.
        Chairman McHenry. The gentleman from Illinois, Mr. Casten,
    is recognized for 5 minutes.
        Mr. Casten. Thank you, Mr. McHenry. Thanks to all our
    witnesses here for a long day. This will surprise all of you. I
    want to talk about climate finance. Before I do that, though, I
    do not want to pile on. What is the old saying? There is not
    much that has not been said, but I have not said it.
        I share the deep concern of all my colleagues with what
    happened at the FDIC and the culture that allowed that to
    happen. I also, as a guy who spent 16 years as a CEO, have
    sympathy for the loneliness of the corner office, if you will,
    and how heavy weighs that crown and the responsibility. I also
    just want to caution all of us on this panel that when we say
    corporate America would never allow this, they would terminate
    the leader, this is not corporate America. Those of us on this
    side of the dais do not have hiring or firing authority with
    respect to this decision. We do not have the ability to change
    the culture of the organization. We certainly have the ability
    to make it politically impossible for you to continue, but we
    will not be held to account if that is the wrong decision.
        I do not read that you were the agent of the problems. I
    did not see anything there that you have personally harassed or
    assaulted anybody, or certainly not been convicted of such
    assaults. I think it is an open question whether your removal
    would solve the problem, but I just would hope that we would
    all keep in mind that if we are concerned about the culture,
    let us not confuse a political scalp with changing culture
    because finding a new person in that seat is not our job. That
    is the Senate's and no one would ever accuse the Senate of
    being a rapid and effective recruiting and hiring manager. It
    just meets a vacancy.
        I want to talk about Basel. Chair Gruenberg, the last time
    you were here, you and I talked about the concern that I had
    about this 400-percent increase in risk weighting for tax
    equity. I think you said at the time that regulators may not
    have fully appreciated the effect that would have on clean
    energy. Given the comments, the discussion since, do you at
    this point support revising those risk weights down for tax
    equity?
        Mr. Gruenberg. Thank you for the question, Congressman.
    This is a proposal that is still out for comment. We have not
    finalized it, so I cannot speak to what we are going to do. Let
    me simply say we have received a lot of comment. This is an
    issue that has received a lot of attention by the agencies, and
    I think we understand the concerns that have been raised.
        Mr. Casten. Okay. Mr. Barr, there was reporting in
    Bloomberg last week that final Basel rules might be as soon as
    August. Would you like to comment on that? Can we anticipate
    some sense of timing of when we will get clarity on these
    issues?
        Mr. Barr. I appreciate the question. As I indicated
    earlier, the Bloomberg article did not reflect the reality as I
    know it on the ground; that is, we have not made any decisions
    about the substance. We are still working our way through that.
    We have made good progress on that. After we are done with
    that, we will figure out process and timing.
        Mr. Casten. I want to move on, but the sooner the better. I
    continue to remain concerned that there are pockets of capital
    that want to play in this space that are sitting on the
    sidelines longer than they need to right now, and the sooner we
    can do that, the better.
        Vice Chair Barr, I want to talk a little bit more about the
    climate scenario analysis that was just done for the Global
    Systemically Important Banks (G-SIBs). In the report, you
    mentioned some of the data challenges that banks had modeling
    physical risks. Can you speak at all to what those challenges
    were and what, if anything, we need to do to help to get that
    data?
        Mr. Barr. Yes. The banks are, in some ways, at an early
    stage of trying to understand and measure and manage those
    risks. One important area, for example, is data about insurance
    coverage. So some of the institutions for some of their
    commercial real estate, for example, had some data on insurance
    coverage but not full data on that coverage across their
    portfolios. There was a lot of variation across the financial
    institutions, and, of course, the losses that a bank would
    suffer are related to the availability of that insurance
    coverage.
        Mr. Casten. I am sure you saw the story in the New York
    Times this week about property and casualty insurers pulling
    out, not just on the coast, but in my own State of Illinois,
    because of hurricane or hail risks coming through. As you go
    through and look at where climate risk is getting into the
    financial system, I am presuming that the banks once they see
    the risk will find a way to offload it. In your view, do you
    have the statutory authority to chase and follow that risk
    through the system, or do you think your statutory is limited
    to saying to the G-SIBs, the banks, we have the authority to
    look at it. If the risk is gone, we do not have to watch it
    anymore.
        Mr. Barr. Well, I would say we have supervisory authority
    over the banking system. We do monitor risk throughout the
    financial system.
        Mr. Casten. I see I am out of time. I want to make sure
    that if insurers go away and it is left holding the equity and
    then it falls to property taxes, it is going to come back on
    our bailiwick. If we need more authority or more direction, let
    us work with you and follow up offline. I yield back.
        Chairman McHenry. The gentleman from Tennessee, Mr. Rose,
    is recognized for 5 minutes.
        Mr. Rose. Thank you, Chairman McHenry, and thanks to
    Ranking Member Waters for holding this hearing, and thank you
    to our witnesses for being with us today.
        Chair Gruenberg, I know this is not a fun day, but I want
    to focus on your leadership at the Federal Deposit Insurance
    Corporation. As the vice chairman of the Oversight and
    Investigations Subcommittee, it is important that we
    appropriately understand the damaging implications of the
    independent Cleary report and your conduct. Yes or no, when an
    FDIC employee has a legitimate complaint about a colleague
    mistreating them, is there a formal process for them to file a
    complaint?
        Mr. Gruenberg. Yes.
        Mr. Rose. That is right, yes. Chairman Gruenberg, it is my
    understanding that the complaint process is that human
    resources work with the FDIC legal division to investigate and
    hold individuals who are accused of being a harasser or a bully
    accountable. Is that correct?
        Mr. Gruenberg. Yes, Congressman.
        Mr. Rose. What happens, though, when you, Chair Gruenberg,
    are the bully or the harasser? Having read the report, I can
    tell you what happens. Your behavior goes unchecked, sadly.
    Your victims are too afraid to complain to HR. Some are even
    too afraid to speak to this committee or Cleary investigators
    and with all who have heard your testimony and watched this
    hearing today, we have heard how you berated a senior executive
    and made her feel like she was working in a hostile
    environment. We have heard how your senior staff fear giving
    you bad news because you scream at employees.
        Chairwoman McWilliams immediately became aware of the
    cultural issues you created when she started, but in 20 years,
    you have spent 20 years at the FDIC, you have failed to address
    any of these issues effectively. Your reign of fear and
    mistreatment at the FDIC must come to an end, sir. I hope all
    of the members of this committee join me in saying that
    correcting harassing and bullying behavior in a toxic workplace
    cannot be successfully carried out, frankly, by the person
    responsible for creating these issues in the first place, like
    you have.
        It has become clear to me that based on today's hearing, my
    reading of the Cleary report, and how you plan to address these
    issues by, frankly, handpicking your own so-called third-party
    monitor, it is clearly time, sir, for you to resign. Chair
    Gruenberg, in terms that I hope you can understand, that I am
    sure you can understand, I conclude that your chairmanship is
    insolvent. Thank you, Mr. Chairman. I yield back.
        Chairman McHenry. Will the gentleman yield?
        Mr. Rose. Yes, I yield to the chair.
        Chairman McHenry. Mr. Gruenberg, you repeatedly say that
    you have a process to clean up the Agency, right? You outlined
    that in some answers. You have not outlined how you intend to
    clean up your actions, the subject of this report. Can you
    speak to that?
        Mr. Gruenberg. Yes, Mr. Chairman. As I indicated, I accept
    the findings of the report in regard to me. I am personally
    committed to addressing the issues identified----
        Chairman McHenry. How are you going to address those
    issues? That is my question.
        Mr. Gruenberg. Well, at the end of the day, it seems to me
    it is a personal effort on my part to address these issues and
    also to accept----
        Chairman McHenry. Describe your effort on your part. The
    personal piece, describe that.
        Mr. Gruenberg. I think it is incumbent on me to be more
    sensitive to how my conduct may be received by employees and to
    understand the only thing that matters is not my perception but
    their perception.
        Chairman McHenry.How long have you been at the Agency?
        Mr. Gruenberg. Since August 2005.
        Chairman McHenry. How long have you been the leader of the
    Agency, cumulative?
        Mr. Gruenberg. Well, I became acting chairman in July 2011.
    I became chairman in 2012, served until 2018.
        Chairman McHenry. It is 10 years roughly, right?
        Mr. Gruenberg. Approximately.
        Chairman McHenry. How are you going to convince the people
    that are reporting your behavior, the problems of your
    behavior, how are you going to convince them that you are not
    going to treat them like you have treated them for the last
    decade?
        Mr. Gruenberg. As the report indicates, I----
        Chairman McHenry. No, I am asking you, not the report. I
    have read the report. I am giving you an opportunity to say you
    are going to seek anger management counseling. Do you intend to
    do that?
        Mr. Gruenberg. I am happy to--I am certainly----
        Chairman McHenry. No, no, no, I am asking what you intend
    to do. I am not trying to convince you in a hearing. I want to
    hear a plan. You have given us no plan on what you as the head
    of the Agency are going to do to change your treatment of your
    direct reports. You have said nothing about that.
        Mr. Gruenberg. The report specifically recommends a 360-
    review on an annual basis----
        Chairman McHenry. I know you are talking about to the
    Agency employees. You have said nothing about what you intend
    to do about your treatment, which is the subject of most of
    these questions today. I understand you are going to refer to
    the report again. I do not need to hear that. I wanted to hear
    a better answer, and this is a very disappointing answer that
    you have given. I yield back to the gentleman, and the
    gentleman's time has expired.
        Mr. Rose. I yield.
        Chairman McHenry. Thank you, Mr. Rose. I will now recognize
    the gentlelady from Massachusetts, Ms. Pressley, for 5 minutes.
        Ms. Pressley. Thank you, Mr. Chair. The work of the FDIC is
    paramount in supervising our banks, strengthening our financial
    system, finalizing important regulations like Community
    Reinvestment Act, Basel III, and in times of economic crisis,
    FDIC is even more important. It was just last year when folks
    in my district, the MA-7, were constantly refreshing the
    Agency's webpage to see if their money was safe after the
    failure of Silicon Valley Bank.
        The Agency's mission is critical, and there is much work to
    do. I had initially planned to spend this time discussing
    regulations and requesting updates from Chair Gruenberg on the
    timeline for finalizing the rules that stabilize our financial
    system. However, after reading the recent report into the
    FDIC's workplace, the public needs answers on the toxic culture
    of racial discrimination and misogyny that has taken root and
    festered at the FDIC. Chair Gruenberg, you have failed your
    staff, people of every walk of life, but especially women
    employees who have brought their knowledge and their skills to
    serve at the FDIC. You have failed the American public who
    relies on the Agency to work productively and to put forth
    policies that protect consumers from bank malfeasance.
        Now, I have to just consider the source here when it comes
    to some of the outrage from my colleagues across the aisle
    because these are the same people who seek to actively defund
    diversity, equity, and inclusion, who denied and undermined the
    Me Too Movement, who voted against the Violence Against Women
    Reauthorization, and who do not want to support finally passing
    the Equal Rights Amendment. That is why I am truly disgusted by
    the fact that you have created an opportunity for Republicans
    who did all of those things to advance their anti-regulation
    agenda and to use survivors, which I am one of abuse as
    political pawns. Moreover, there is not one woman on this
    panel, and I almost walked out just on the strength of that,
    but the only reason why I did not is because that is a systemic
    issue here in Congress and often for people who come before
    this committee. If you do not have one woman in a position of
    leadership and authority that should be there, then that is
    also a problem.
        But again, the report detailed hundreds of women who
    experienced harassment with no recourse. For over a decade, the
    FDIC, under your leadership and your predecessors, ignored
    them. Chair Gruenberg, in November, in fact, not that long ago,
    you stated that the FDIC already has ``appropriate policies and
    procedures in place.'' This is a yes or no question. I am
    serious. Do you now agree that the policies and procedures in
    place have been a cataclysmic failure and an affront to the
    many women who have been harassed, pushed out of the FDIC, and
    forced to change their career goals and life trajectory?
        Mr. Gruenberg. They have failed, yes, Congresswoman.
        Ms. Pressley. ``Small,'' ``ashamed,'' ``traumatized,''
    ``humiliated,'' ``alone.'' These are just a few of the words to
    describe the intense feelings of sexual harassment and what
    survivors endure. According to the FDIC's own reporting, more
    than 80 percent of harassment complaints resulted in zero
    discipline, and when there were repercussions, not a single one
    resulted in removal, reductions in grade or pay, or any
    discipline more serious than a temporary suspension. I am so
    tired of white men failing us. This lack of accountability is a
    shameful, inadequate, and deeply unsatisfactory, and it is re-
    traumatizing.
        Chair Gruenberg, can you guarantee right now no employee at
    the FDIC will face any form of intimidation or retaliation for
    reporting an incident of sexual harassment regardless of
    confidentiality agreements?
        Mr. Gruenberg. That is our goal, Congresswoman. Yes, the
    answer to that is yes.
        Ms. Pressley. It is shameful that through your inadequate
    leadership at the helm of this Agency that you have fueled
    calls for your resignation from the political opportunists
    across this aisle and jeopardized critical regulations pending
    finalization at your Agency. Personally, I do not have
    confidence that you can continue to lead in this role because
    there is a deficit of trust, and your credibility has been
    undermined to lead the FDIC through the changes it needs to
    make to affirm the dignity of the survivors of harassment,
    discrimination, and abuse at your Agency. Thank you, and I
    yield.
        Chairman McHenry. The gentleman from Ohio, Mr. Davidson, is
    now recognized for 5 minutes.
        Mr. Davidson. I thank the Chairman. I would like to ask
    unanimous consent to enter the 2018 letter from African
    American FDIC employees, a letter that the ranking member also
    received in 2018, into the record.
        Chairman McHenry. Without objection.

        [The information referred to was not submitted prior to
    printing.]

        Mr. Davidson. Mr. Gruenberg, yes or no. Are you aware of a
    September 2018 letter that Chairman McWilliams received from a
    group of anonymous African American employees describing
    discrimination and a toxic workplace that they had experienced
    at the FDIC?
        Mr. Gruenberg. Yes, Congressman.
        Mr. Davidson. This letter described African American
    employees as being ``afraid to speak about issues they faced
    for fear of repercussions because of the FDIC's culture and
    claimed this discrimination had persisted since 2001.'' How
    long into your chairmanship did you become aware of this?
        Mr. Gruenberg. The letter you referenced was not shared
    with me until 2022, Congressman.
        Mr. Davidson. What actions have you taken to try to address
    that culture because culture has been bad there, and,
    presumably, that was part of why you were considered the right
    person for the job. Now, errors in judgment aside, what have
    you done to actually positively influence the culture there
    because much has been made of the things that you have failed
    to do, and, frankly, some errors and omissions in the past.
    What could you say that you have actually done to try to
    address these concerns that were part of the culture that you
    were brought into shape?
        Mr. Gruenberg. That letter raised a number of issues in
    regard to the opportunities for African American employees at
    the FDIC in terms of hiring, retention, promotions. We have had
    a strategic plan, and it has been a core priority of the FDIC--
    --
        Mr. Davidson. I would just say the plan has not worked
    well. Look, I think I join my colleagues in saying I think that
    we need new leadership at the FDIC and in a broader of our
    agencies. It is incredibly disappointing to see the culture,
    and, frankly, a culture that does not seem like you are the
    right person. Look, lots of people can find excuses. Leaders
    find a way, and clearly, you have not found a way to positively
    influence the culture. If anything, it has gone the opposite
    direction, so I think it is a real problem for the FDIC.
        The work of the FDIC is really important, and when you look
    at the core mission, the FDIC really has not done well as a
    regulator. When I look broadly at the three regulators that are
    here today, there have been a lot of problems in the regulatory
    space. If you look at Silicon Valley Bank, we had a failure of
    the San Francisco Fed, we had a failure at the FDIC, and
    clearly a failure of fiduciary duty by the Board and the
    leadership of Silicon Valley Bank. When I look at the role of
    Congress in this, maybe the biggest void is with the Fed
    because at least we can say that the FDIC and very clearly the
    OCC have more control with appropriations. A lot of you have a
    lot of autonomy to the point where we see things like Operation
    Choke Point. I do not know whether it is 2.0 or 6.0, but the
    idea that the Federal regulators are not going after things
    that are illegal, but things that are just disfavored.
        So, Vice Chairman Barr, one of the actions recently is this
    idea that we are going to designate new things systemically
    important to financial institutions, nonbank mortgage lenders.
    Were you part of any of those discussions with Secretary
    Yellen?
        Mr. Barr. Congressman, the Financial Stability Oversight
    report did not recommend designation as an answer to the
    problems raised in the report.
        Mr. Davidson. Chair Yellen, who is a woman, I will point
    out to my colleague, the leader of Treasury, is she free range
    on this? Is that something that you support, that you really
    believe we should expand the number of Systemically Important
    Financial Institutions (SIFIs)? Is that supported, or is she
    kind of out there on her own on that?
        Mr. Barr. I have a practice, sir, of not commenting on
    other public officials. As I said, the FSOC report itself is
    focused on a set of measures that are designed to improve the
    resilience of the non-bank mortgage servicer sector, and the
    report did not suggest that designation was one of those
    measures at this time.
        Mr. Davidson. Thank you for that clarification, and,
    Director Hsu, I am really concerned about the OCC's role in
    approving bank mergers. I mean, one of the things that we tried
    to do with tailoring was to be able to go after appropriate
    size, fit-for-size regulation. Part of the challenge is, when
    you look at the biggest banks, there is a wide range between
    the very biggest banks and the next tier. How do you see
    mergers and acquisitions appropriately proceeding in that
    environment because we have essentially artificially capped the
    ability for the market to function for these banks?
        Mr. Hsu. Yes. There is no artificial cap. A merger
    application that fulfills all the statutory factors, being pro-
    competitive, pro-financial stability, pro-convenience in the
    needs of the community, will be approved. The question is, what
    kind of merger comes in and how are all those issues being
    analyzed and how do they stack up?
        Mr. Davidson. I hope that resolves favorably, and I look
    forward to working with you. Thank you for your time and
    testimony. I yield back.
        Chairman McHenry. The gentlewoman from Texas, Ms. Garcia,
    is now recognized for 5 minutes.
        Ms. Garcia. Thank you, Mr. Chairman, and thank you for the
    witnesses and their time and attention today. It is always good
    to see you all.
        Let me begin with you, Chair Gruenberg. The Cleary report
    discussed the 15 recommendations included in the 2020 inspector
    general report on sexual harassment. That is a 2020 report. A
    year later, in 2021, the inspector general reported that the
    same recommendations were closed and addressed. Now, in that
    inspector general report, some of those recommendations were
    about this very topic of sexual harassment and workplace
    environment, were they not?
        Mr. Gruenberg. Yes, that was the subject of the report.
        Ms. Garcia. That was the subject of the report.
        Mr. Gruenberg. Yes.
        Ms. Garcia. So we went through all that up to 2021. Were
    you chair then?
        Mr. Gruenberg. No, Congresswoman.
        Ms. Garcia. Who was the chair then?
        Mr. Gruenberg. I believe Jelena McWilliams.
        Ms. Garcia. I am sorry?
        Mr. Gruenberg. Jelena McWilliams.
        Ms. Garcia. Ms. McWilliams. Presumably, if there was a
    culture and there were recommendations made, the inspector
    general felt like they had been taken care of and it got
    closed. Is that an assumption that can be made?
        Mr. Gruenberg. They found that the Agency's response to the
    recommendations was satisfactory from the IG's standpoint.
        Ms. Garcia. Right. Well, I am trying to reconcile that with
    the fact that on page 88 of the report, it says that the
    allegations covered the period from 1980s. That is way before
    the 2020 inspector general report and way before today. Is that
    true?
        Mr. Gruenberg. Yes, Congresswoman.
        Ms. Garcia. So this culture has been going on for a long
    time, and apparently the steps taken under the leadership of
    then Chair McWilliams were either inadequate or the review was
    inadequate. I am just trying to reconcile what has really
    happened in terms of timeline. Now the hotline itself--I did
    not get any detail as to when the incidents occurred, but they
    talked about sexual assault and unwanted advances, harassment,
    gender-or sex-based discrimination, workplace bullying,
    threats. I mean, it goes into a lot of detail over a lot of
    allegations. So it just really kind of stuns me that something
    could have been going on since 1980s, but an inspector general
    may have closed the file in 2021, but now we have all these
    things, okay?
        When I look at the history, you all have had probably since
    the 80s maybe 12 or 15 different chairmen. You have been acting
    chairman a couple of times. You are chairman now. When was it
    that you first really heard--and I do not mean news reports. I
    do not mean inspector general, but you personally--hear, see,
    or even feel anything that was inappropriate?
        Mr. Gruenberg. Congresswoman, in terms of the deep-seated
    workplace culture issues, it was the news reports that came out
    last year that identified them in a way that----
        Ms. Garcia. So from 2021 when the inspector general closed
    the report until last year, you had heard zero?
        Mr. Gruenberg. Yes. The 2020 IG report identified
    shortcomings in policies and procedures and training by the
    Agency. It made generalizations about workplace culture but did
    not make the kind of findings that you saw in the news reports
    last year or----
        Ms. Garcia. Right. Did your board have a committee that
    dealt with this at all during this time period? I am not
    talking about the new one that you are creating, but the Board
    itself. Did you have a committee that dealt with human
    resources, personnel, personal conduct?
        Mr. Gruenberg. Not a committee devoted to that. That would
    have been a board responsibility and a management
    responsibility for the chairman.
        Ms. Garcia. Right. Well, I am just trying to make sense of
    this. Number one, it is totally disappointing and totally
    unacceptable. I am just not even sure sometimes how something
    like this could have existed for so long under so many
    administrations--we are talking about since the 1980s--and
    through so many chairmanships but the bottom line is, you are
    there now. You take full responsibility?
        Mr. Gruenberg. I do.
        Ms. Garcia. You will implement all these programs?
        Mr. Gruenberg. I will.
        Ms. Garcia. Will you enter in some type of self-improvement
    program as the chairman has suggested?
        Mr. Gruenberg. Yes.
        Ms. Garcia. What might that include?
        Mr. Gruenberg. I think that is something we would have to
    develop, but certainly coaching or counseling, as well as the
    360 review recommended in the report.
        Ms. Garcia. No, I am talking about you yourself, sir.
        Mr. Gruenberg. Yes. I think it is fundamentally an issue
    for me to address in terms of my personal interactions with
    staff and be more sensitive to how staff receive interactions
    with me and ensure that they are appropriate and the only thing
    that matters----
        Ms. Garcia. Will you take an anger management course?
        Mr. Gruenberg. Yes.
        Ms. Garcia. Okay. Thank you. I yield back.
        Mr. Steil [presiding]. The gentlewoman's time has expired.
    I now recognize myself for 5 minutes.
        Mr. Gruenberg, do you know who Eric Lander is?
        Mr. Gruenberg. No, I am not familiar with him.
        Mr. Steil. He is the former director of the Office of
    Science and Technology Policy. Do you know who Martin Dickman
    is?
        Mr. Gruenberg. No, sir.
        Mr. Steil. Dickman was the inspector general for the United
    States Railroad Retirement Board. If you do not know who either
    of these are, you may not know what they have in common. Both
    were either fired or resigned for mistreating their staff. Mr.
    Lander resigned in February 2022 after reports surfaced that he
    bullied and mistreated subordinates. Mr. Dickman was subject to
    an investigation like the one the FDIC just underwent. That
    investigation found that he created a ``toxic work environment
    and engaged in abusive treatment.'' Mr. Biden fired him 2
    months ago. You probably remember that on the day before his
    inauguration, President Biden laid out a zero-tolerance policy
    for this kind of behavior.
        Here is a direct quote from President Biden, ``If you ever
    work with me and I hear that you treat another colleague with
    disrespect or talk down to someone, I will fire you on the
    spot. No if, ands, or buts.'' So these two men lost their jobs
    crossing the line set out by President Biden, but you are still
    here, even though a thorough review is found that you have done
    some of the same things. To be honest, I think it is
    transparent what is happening here. The administration cannot
    afford to lose you, in particular, your vote on the Board,
    which is key to getting the Basel III Endgame done and engaging
    in an aggressive political agenda.
        Let me shift gears and dig into the report briefly here. In
    the report, it found that you are aggressive. Do you dispute
    the findings?
        Mr. Gruenberg. I accept the findings, Congressman.
        Mr. Steil. So you accept that you are aggressive to your
    staff?
        Mr. Gruenberg. I accept the findings in the report. I do.
        Mr. Steil. So you also accept that you are harsh to your
    staff?
        Mr. Gruenberg. I accept the findings in the report, yes.
        Mr. Steil. You accept that you are vitriolic to your staff?
        Mr. Gruenberg. I accept the findings in the report,
    Congressman.
        Mr. Steil. You accept that you are disrespectful to your
    staff?
        Mr. Gruenberg. I accept the findings in the report as you
    indicate.
        Mr. Steil. Because I think it is important, some of the
    language that I have heard you use is that people observe you
    in this way. The report actually finds that you are those
    terms, and I think there is a big distinction here because it
    is not in the eye of the beholder as sometimes your terminology
    has indicated. It is, the report found that you had been
    aggressive, harsh, vitriolic, and disrespectful to your staff.
    I think that is why I and others have zero faith in your
    ability to be an effective leader of the Agency and have called
    for your resignation.
        Let me shift gears and talk about what the Agency is doing,
    the FDIC under your work, and I want to talk specifically about
    the role the FDIC should be playing in innovation and the role
    that it is playing in innovation. Over the last few years,
    innovative businesses have begun to change the way we bank and
    for the better. Yet. I have continued to receive complaints
    about seemingly arbitrary enforcement actions, and I have heard
    stories from FDIC staff refusing to provide feedback to
    fintechs on regulatory questions. It has gotten so bad that
    vice chair, Travis Hill, has said publicly that the perception
    you have created is the FDIC is ``closed for business.''
        So what are you doing to counter this perception in what we
    have seen is an aggressive enforcement action as it relates to
    fintechs? You went from one enforcement in 2021 to 14 in 2023.
    Is that correct?
        Mr. Gruenberg. I have to check the record on that,
    Congressman. I do not know offhand.
        Mr. Steil. Well, I will tell you that it is, and do you
    think that you have an aggressive enforcement action preventing
    innovation in the fintech space?
        Mr. Gruenberg. I do not think so, Congressman.
        Mr. Steil. Is there a reason for the dramatic increase in
    the number of enforcements?
        Mr. Gruenberg. I would look into the record. I would say
    most banks manage third-party relationships, including with
    fintechs, effectively and well, and they offer useful business
    opportunities for both. We have had some instances in which
    those relationships were not managed well by banks in which
    they overreached and had significant risk management and
    consumer protection issues.
        Mr. Steil. So what are you doing with the third parties in
    partnering with financial institutions in meeting compliance
    obligations before an enforcement action is brought against the
    banks?
        Mr. Gruenberg. We engage with both parties. As I say, in
    most instances, banks manage those relationships well. In some
    instances----
        Mr. Steil. So you would disagree with those that say you
    have a hostile stance toward fintechs' partner banks?
        Mr. Gruenberg. Yes.
        Mr. Steil. Very nice. I yield back. I now recognize Mr.
    Torres for 5 minutes for the purpose of asking questions.
        Mr. Torres. Thank you, Chair. Mr. Gruenberg, I appreciated
    your leadership during Signature. There were 80,000 units of
    affordable housing that were at risk of losing their
    affordability, and I felt like you were instrumental in
    preserving the affordability of those units, but I am deeply
    troubled by the findings of sexual harassment, racial
    discrimination at the FDIC, and so I have been struggling to
    figure out how I should respond. I am curious, imagine for a
    moment our roles were reversed. Imagine if you were a
    Congressman on the House Financial Services Committee, and I
    was the chair of the FDIC, under the cloud of a scandal. Would
    you call on me to resign?
        Mr. Gruenberg. No, Congressman.
        Mr. Torres. Imagine if you were a Congressman from the
    Bronx, and one of your constituents approached you--and you
    know the Bronx well; you were an organizer in the Bronx--and
    one of your Bronx residents approached you and said,
    Congressman, why you are not calling for the resignation of an
    FDIC chair whose Agency has been found to have a pattern of
    sexual harassment and racial discrimination. What do I tell my
    constituent?
        Mr. Gruenberg. I would tell them, this is a serious
    problem. The chairman has recognized it, taken responsibility
    for it, and is working hard and has been working hard since
    last year to address it. I think it is important to give him a
    chance to do that, and interrupting leadership at this point
    would not advance that objective.
        Mr. Torres. The problem, that issue predates you?
        Mr. Gruenberg. It does, Congressman.
        Mr. Torres. Okay. So it is neither a Democratic nor a
    Republican issue?
        Mr. Gruenberg. I think that is true.
        Mr. Torres. It is so systemic that it transcends party
    affiliation?
        Mr. Gruenberg. I think that is true.
        Mr. Torres. I want to ask about Basel III, Vice Chair Barr.
    On March 6, 2024, I asked Fed chair, Jerome Powell, the
    following question: how do you reconcile the Fed's repeat
    reassurances about a well-capitalized banking system with Basel
    III's assumption of an undercapitalized banking system. The Fed
    Chair replied with the following answer, ``I have said for
    years in this room that I thought the level of capital in the
    U.S. banking system is about right.'' Vice Chair Barr, do you
    agree with Chair Powell that the level of capital in the U.S.
    banking system is about right?
        Mr. Barr. Thank you, Congressman. I very much appreciate
    the question. As you have heard me say before and you have
    heard Chair Powell say before, I am not in the business of
    commenting on other public officials' comments. I will say,
    from my perspective, overall, the banking system is sound and
    resilient. The capital proposal we put forward is designed to
    correct particular weaknesses in the approach that we have
    right now.
        Mr. Torres. I want to interrupt for a moment. Setting aside
    Chair Powell, do you agree with the assessment that the level
    of capital in the U.S. banking system is about right? Set aside
    the source of the quote.
        Mr. Barr. Yes. Again, I am not going to comment on that. I
    will say that with respect to capital in the system, I think
    the system overall is sound. I am not worried about risks in
    the banking system beyond those that I have identified but I do
    think we can do better, and the Basel III approach is about
    doing better for that.
        Mr. Torres. So when setting capital requirements, there is
    a tradeoff between safety and soundness on the one hand and
    capital formation on the other, right? The best regulatory
    outcome lies not in maximizing safety and soundness to the
    exclusion of capital formation, nor does it lie in maximizing
    capital formation to the exclusion of safety and soundness. The
    best outcome lies in striking an optimal balance between the
    two.
        If you as a banking regulator, you get the balancing act
    wrong, as you may well be doing with Basel III, it could mean
    less credit for households and businesses. It can mean less
    financing for clean energy in an age of catastrophic climate
    change. It can mean less equity and debt financing for
    affordable housing at a time when housing costs are a
    disproportionate driver of inflation. Simply put, the loss of
    credit is no abstraction, and so can you state with certainty
    to the public that your Basel III proposal has objectively
    identified the optimal level of capital in the banking system?
        Mr. Barr. Congressman, I do not think anyone can say that
    on either side of it. The risk of doing too little in this
    space is that we have another devastating financial crisis that
    shutters American businesses and harms American households.
    What we are trying to do is get that balance right.
        Mr. Torres. No, no one disputes the need for safety and
    soundness, but you could increase capital requirements by 50
    percent on the basis of safety and soundness, and in the
    service of preventing a financial crisis, right? The question
    is, how do we know with certainty whether we are optimizing the
    level of safety and soundness and capital formation?
        Mr. Barr. I do not think either of us are in the business
    of certainty, sir.
        Mr. Torres. Well, I see my time is about to expire.
        Mr. Timmons [presiding]. Thank you. I now recognize myself
    for 5 minutes. Thank you, Mr. Chairman, and thank you to the
    witnesses for being here today.
        Vice Chair Barr, I am becoming increasingly concerned about
    rising rates of check fraud, particularly duplicate presentment
    fraud, which occurs when fraudsters make multiple deposits of
    the same check. According to recent testimony from the American
    Bankers Association (ABA), check fraud has become one of the
    fastest growing categories of fraud across the country.
    Duplicate presentment fraud has posed exceptional challenges in
    recent years comprising over one-quarter of all check
    adjustments handled by the Federal Reserve in 2022. I feel like
    technologies should solve this problem. Mr. Barr, would the Fed
    consider operationalizing the Fed's duplicate check notifier
    service or explore other technological solutions that can
    enable real-time fraud detection across all check processing
    organizations?
        Mr. Barr. Thank you for the question. I agree that check
    fraud is a significant problem. It is one that we are quite
    focused on. We are looking at various technological ways that
    we can help but also working with banks as supervisors
    throughout the system. It is an issue that when I travel around
    the country, community bankers often raise to me. Really, banks
    of every size are concerned about this.
        Mr. Timmons. Is this something that you think technology
    can play a role in solving or at least reducing substantially?
        Mr. Barr. Technology might help. It is not the only answer,
    but there are technologies we are thinking about that can help
    in this space, some of which are being deployed in the banking
    system today.
        Mr. Timmons. Thank you. Chair Gruenberg, it is made clear
    in the long-term debt proposal that the specific calibrations
    of the rule were determined using the current capital framework
    that the Basel III Endgame seeks to amend, making an accurate
    assessment of the long-term debt proposal impossible. It seems
    premature to finalize the long-term debt rules without fully
    understanding the impacts of Basel III Endgame. While I
    continue to believe that Basel III Endgame proposed rule should
    be withdrawn and reissued, would you agree that the agencies
    should not finalize a long-term debt proposal until banks have
    a better understanding of the capital requirements they will
    face under Basel III?
        Mr. Gruenberg. The long-term debt rule was really
    developed, if I may say, Congressman, independently of the
    Basel capital rule. It is really designed to create a buffer of
    long-term debt for institutions over $100 billion that could
    absorb losses in the event of stress and avoid a failure of the
    institution or reduce the cost of failure. So it is certainly
    fair to take into account capital requirements, but I think the
    debt requirement here really stands separate from that.
        Mr. Timmons. Would you say that it is unreasonable for this
    to be implemented if you do not actually know what the result
    is going to be?
        Mr. Gruenberg. I think we have received extensive comment.
    I think we have an understanding of what the impact would be.
    We have not finalized the rule. We are still considering the
    comments received, but I would not link the long-term debt rule
    per se with the Basel capital rule.
        Mr. Timmons. Thank you for that. I have been in Congress
    for 5-and-a-half, almost 6 years now, and I have not seen the
    bipartisan calls for anyone's resignation to the extent that I
    have seen yours. You do not seem to be intending to resign.
    What are you going to do to change the culture issues that are
    present at the FDIC?
        Mr. Gruenberg. The Agency has a fundamental challenge. We
    have been working on them since last year. Fundamentally, we
    have to break the current culture of a good old boy's network
    that is obstructing proper complaints and accountability for
    misconduct, and I believe the Agency has the ability to do
    that. As a starting point, we would implement a new independent
    office reporting directly to the Board that would consolidate
    all of the functions of reporting, investigating, and holding
    people accountable for misconduct. Then we have a challenge in
    addition to our decentralized structure field offices around
    the country, we have to impose closer oversight and
    accountability there. If we can do those two things, I believe
    we can significantly impact the deep-seated issues that have
    been identified.
        Mr. Timmons. If there is this culture problem, I am sure
    that there are ways to have metrics associated with it. You can
    send out surveys and whatnot. At what point, let us say 6
    months from now, 12 months from now, if things have not
    substantially improved, will you reconsider the calls for you
    to change leadership?
        Mr. Gruenberg. What we intend to do, and as part of our
    action plan, is to monitor carefully the implementation of the
    recommendations and their impact. We have already begun the
    process of identifying an independent monitor, who would
    monitor, who would audit the implementation of the
    recommendations, and engage an expert third-party to advise us
    on addressing the culture change issues. These were both
    recommendations of the recent report.
        Mr. Timmons. My time has expired. I yield back. I now
    recognize the gentlewoman from New York, Ms. Velazquez.
        Ms. Velazquez. Thank you, Mr. Chairman. Vice Chair Barr,
    why did the Fed not move forward with a Notice of Proposed
    Rulemaking (NPR) on Section 956 last week?
        Mr. Barr. Thank you, Congresswoman. We are committed to
    finalizing a joint rule on Section 956. After discussion with
    my Board colleagues, we decided that it would be appropriate to
    have additional analysis done within the Fed, and we are
    conducting that analysis at this time.
        Ms. Velazquez. Do you support the need for this rulemaking?
        Mr. Barr. I am committed to it, Congresswoman.
        Ms. Velazquez. When do you expect for this rule for the Fed
    to join the other regulators?
        Mr. Barr. Yes. Unfortunately, I do not have an answer to
    that. I am consulting with my Board colleagues on the substance
    of it.
        Ms. Velazquez. Okay. Can you explain the problem we are
    trying to solve under Section 956?
        Mr. Barr. Yes. Section 956 is designed to address problems
    with respect to executive compensation that can lead to
    excessive risk tanking at banks, that ends up causing serious
    harm to the country.
        Ms. Velazquez. We should not wait for another Silicon
    Valley.
        Mr. Barr. I agree. Silicon Valley was, in part, a problem
    of executive compensation that was not well aligned with risk
    taking.
        Ms. Velazquez. Do you remember or you recall that this
    rulemaking was required to be done in April 2011?
        Mr. Barr. Yes, that is correct.
        Ms. Velazquez. All right. Okay. Thank you. Mr. Gruenberg,
    today's hearing should be an opportunity to discuss the very
    pressing challenges facing our prudential regulators and the
    economy as a whole, but unfortunately, the working environment
    described in the Cleary Gottlieb report paints a disturbing
    picture. This includes allegation of sexual assaults and
    harassment, gender discrimination, workplace bullying, and
    racial discrimination, and these were not isolated incidents.
    The report makes clear that these were widespread and long
    running.
        Mr. Gruenberg, I have spent my entire career fighting
    against these practices in the workplace and in all areas of
    life. No employee, as I mentioned to you yesterday, should have
    to work in an environment like this. Yet, this was the reality
    for more than 500 staffers who were demeaned as they attempted
    to serve their country through their work. Simply put, the
    issues outlined in this report must be addressed, and they must
    be addressed now. To be frank, I am not satisfied by the
    answers, Chairman, you have given about how you plan to ensure
    that no FDIC employee has to go through something similar.
        The culture of any organization starts at the top. I do not
    tolerate this in my office. Yet, this horrid working
    environment has persisted at the FDIC where you served as head
    for 10 of the last 13 years. As leaders, it is on us to protect
    our employees and have zero tolerance for this type of
    behavior. For decades, the FDIC has failed in this basic
    responsibility. I am seriously questioning my confidence in
    your ability to change the culture of the FDIC and lead the
    Agency moving forward. Mr. Chairman, I yield back.
        Chairman McHenry [presiding]. The gentlelady yields back.
    We will now go to the gentleman from South Carolina, Mr.
    Norman, for 5 minutes.
        Mr. Norman. Thank all of you for appearing today. Mr. Hsu,
    Michael, would you comment on the fact that September 2022,
    political activists lobbied the International Organization for
    Standardization to adopt a merchant category code to track the
    sale of firearms and ammunition with the stated goal of
    facilitating and monitoring and reporting of constitutionally
    protected activities? The goal was to enable government
    entities to discriminate against both these lawful businesses
    and their customers despite the fact that individuals have
    passed a background check. I was very troubled to learn that
    the Financial Crimes Enforcement Network was pressuring the
    financial sector to utilize this category code to flag supposed
    suspicious transactions. Has the Office of the Comptroller of
    the Currency in any way and been involved in the effort to
    weaponize firearm specific merchant category codes?
        Mr. Hsu. Not to my knowledge, no.
        Mr. Norman. So the Agency has not?
        Mr. Hsu. Not to my knowledge.
        Mr. Norman. Do you think it is an appropriate role of the
    Federal Government to weaponize the financial system and engage
    in this kind of discrimination against the firearm business?
        Mr. Hsu. No.
        Mr. Norman. Do you agree that pressuring the financial
    sector to reveal the purchasing history of gun owners raises
    privacy concerns?
        Mr. Hsu. There are concerns that our role is to ensure the
    safety and soundness and fairness of the banking system. That
    is our focus. We do not believe that the banking system should
    target particular industries. It has to have a risk basis.
        Mr. Norman. Okay. I am glad to hear that. I am in the real
    estate business. The common tsunami is in the office space. The
    default on loans is going to affect this whole country, not
    just from coronavirus disease (COVID), but other things as
    well. The Republicans have been sounding the alarm about the
    regulatory tsunami that is going to overwhelm the banking
    industry. They have been asked to implement the new capital
    1071, the late fee issue, the Community Reinvestment Act (CRA)
    rules, as well as other guidance documents issued by the
    Consumer Financial Protection Bureau (CFPB), which they are not
    guidance. They are vague and a lot more mandatory than they
    used to be. ``Shall'' has been the word used instead of
    ``option,'' I guess.
        Are your agencies considering an impact on banks, and this
    is for any of you, particularly community banks, on
    implementing all of these regulations, guidance documents that
    have been published over the last 12 months. Mr. Barr, do you
    want to start off?
        Mr. Barr. I do think it is important for banks and
    supervisors to focus on risks to the safety and soundness of
    the banking system. Like you, we have seen issues in the office
    commercial real estate space. We are quite focused on making
    sure that banks have the appropriate risk measurement and
    management practices in place to address those issues.
        Mr. Norman. Mr. Gruenberg?
        Mr. Gruenberg. I agree with what Vice Chairman Barr said. I
    would suggest that the rulemakings that we focused on generally
    impacted the larger institutions over $100 billion, either for
    broader financial stability concerns, also specifically
    responding to the vulnerabilities identified in the bank
    failures last year. I would say, in regard to the CRA rule, we
    were particularly sensitive and responsive to actually
    lightening regulatory burden for the majority of community
    banks in the United States.
        Mr. Norman. Any comment?
        Mr. Hsu. I agree with what my colleagues say. In addition,
    when I meet with community bankers and they raise these issues,
    I invite them to engage with us to identify which of those
    regulations would be most burdensome.
        Mr. Norman. Mr. Gruenberg, do you agree that the resources
    like the FDIC believe that the banking sector should be
    oriented toward profitability and stimulating economic activity
    rather than unrelated political and social goals? Is it
    appropriate, in your opinion, for banks to discriminate against
    lawful commerce such as energy development, mineral extraction,
    and the firearm industry?
        Mr. Gruenberg. They should not. No, Congressman.
        Mr. Norman. Okay. You agree with that. I have 23 seconds.
    Thank each one of you for coming. I yield back, Mr. Chairman.
        Chairman McHenry. The gentlelady from Michigan, Ms. Tlaib,
    is now recognized for 5 minutes.
        Ms. Tlaib. Thank you, Mr. Chair. Thank you so much. Vice
    Chair Barr, I think all of us have been eagerly wanting to see
    956 being implemented. I mean, I think it has been 13 years,
    and we already know that this was not a suggestion or a
    recommendation. It was required by law but Vice Chair Barr, did
    Greg Becker, the Silicon Valley Bank's former president and
    CEO, did he sit on the San Francisco Fed Board before his own
    bank failed?
        Mr. Barr. Yes, Congresswoman.
        Ms. Tlaib. Most people are, of course, familiar with the
    idea of regulatory capture in terms of corruption or the
    revolving door. These are real issues. Do you agree?
        Mr. Barr. I have not seen issues of corruption in the
    regulatory structure in my experience.
        Ms. Tlaib. So the Federal Reserve System is structured such
    that bank executives hold positions of significant influence
    and status, correct, on these boards that oversee----
        Mr. Barr. The board members of the regional reserve banks
    play no role whatsoever in supervision. They are prohibited by
    law from doing that, and under the Federal Reserve Act, banks
    are elected to the board by statute. That is not something that
    we just decide to do.
        Ms. Tlaib. Okay. Vice Chair Barr, in terms of Fed
    employees, for instance, working on the proposed rule, how
    often do they interact with the executive officers from banks?
        Mr. Barr. I am sorry. I could not hear the beginning of the
    question.
        Ms. Tlaib. In terms of the Fed employees working on
    proposed rules, do they often interact with the executive
    officers from banks because they are over there on these
    Federal Reserve Banks?
        Mr. Barr. Senior staff at the Federal Reserve do receive
    comment from the banking sector, at staff of all different
    kinds of levels. Usually, the more senior staff or executive as
    an organization----
        Ms. Tlaib. Yes. I am just trying to figure out why it took
    13 years. In terms of Federal Reserve Board of Governors, for
    instance, to what extent do members' social networks overlap
    with those bank executives?
        Mr. Barr. I do not know the answer to that question.
        Ms. Tlaib. Are financial executives commonly part of
    members' social circles?
        Mr. Barr. I do not know.
        Ms. Tlaib. Okay. How often do members of Board of Governors
    of Federal Reserve interact with bank executives at work or
    personal capacity?
        Mr. Barr. That work what?
        Ms. Tlaib. How often do members of the Board of Governors
    of the Federal Reserve system interact with bank executives at
    their workplace?
        Mr. Barr. I often meet with bank executives. It is part of
    my job. I engage with them as a supervisor and also receive
    comments from them on our regulatory process. Other members of
    the Board also regularly interact with them.
        Ms. Tlaib. Yes. Again, this is really me trying to figure
    out what is going on, why 13 years? This might come up, I do
    not know, maybe because regulators identify with those that
    they regulate, sharing overlapping social networks, or simply
    perceive finance executives to have a high intellectual
    economic status. I mean, I am just trying to figure out if it
    is all within this circle and folks are just making decisions
    based on their social networks, not based on what is required
    by law.
        Mr. Barr. My experience at the Board over the last nearly 2
    years is that Board members are trying to do their best to
    reach a substantive judgment based on their own understanding
    of----
        Ms. Tlaib. So it is going to take 13 years every single
    time to enforce the law----
        Mr. Barr. Obviously, I cannot speak to the 13 years. I am
    just describing my experience----
        Ms. Tlaib. Vice Chair Barr, I believe that you have
    intention of implementing. I just hope it is soon. Is it going
    to be 2 months, 3 months, 4 months, before we see actual
    implementation of Section 956?
        Mr. Barr. Again, I cannot commit to a timing. I am doing my
    best to work with my Board to resolve these issues in a way
    that is meeting the congressional statutory requirement.
        Ms. Tlaib. Chair, we have spoken and you know that I am a
    survivor myself, my first job outside of college, you know
    this. I read one of and I tried not to, I needed to see how--I
    mean, I saw the numbers. I saw the incidents, but one FDIC
    employee reported to them that she feared for her own physical
    safety after a more senior colleague who had been stalking her,
    continued to text her even after she made a complaint against
    him for, among other things, sending unwelcome sexualized text
    messages that feature partially naked women engaging in sexual
    acts. My God, like that. There is more. There is more,
    Chairman. I told you this, when it happened to me and I told
    people, they were not surprised. I lasted 5 months because no
    one did anything.
        Chairman, you understand there is no trust right now. Many
    of the people have been impacted directly from the lack of
    action, lack of accountability, and this sounds like, I did not
    know, I did not get it until then. It is a long list. We are
    not talking about 10, 20, or 30 people. Over 500 people called
    that hotline. Some of it is even on religious discrimination,
    on just all these other things but I know as a woman in a
    workplace, it is that power they put on you, the way that one
    of them even lured her away to rub on her. I mean, Chairman,
    this is incredibly serious.
        So I just want you to know, I do not know how you do it. I
    do not know how you build trust among the people that are now
    relying on you to make sure it never happens again, and I do
    not know how we heal or address the trauma and really the
    culture that has been created within just the whole Feds. I
    mean, this is pretty unbelievable. Thank you, Mr. Chairman.
        Chairman McHenry. The gentleman from Pennsylvania, Mr.
    Meuser, is recognized for 5 minutes.
        Mr. Meuser. Thank you, Mr. Chairman. Vice Chair Barr, good
    afternoon. The QIS, it earlier, that would be released, I
    believe you said, very soon. Can we get a better idea of when
    it will be released in that?
        Mr. Barr. I do not have a precise timetable. I said
    relatively soon. I think it will be relatively soon. As I
    indicated, the staff have gone through a process of cleaning
    the data and they are doing quality control. When they are done
    with that, we will release it.
        Mr. Meuser. Six weeks?
        Mr. Barr. Again, I do not want to specify beyond what I
    have said, which is relatively soon.
        Mr. Meuser. Okay, let me ask you this then. In light of the
    continued inflation, and increasing unemployment and housing
    issues, commercial real estate effects on banks, and rental
    prices going through the roof, and credit card debt of
    consumers at the highest levels, I think, in recorded history,
    interest rates going to stay at higher levels, I mean, not
    going to come down with continued inflation, and all the
    consumer price index (CPI) numbers and everything else, access
    to capital for small businesses is already very much of a
    challenge as minimal capital investment taking place within
    small businesses and large businesses. So the economy is on
    very thin ice and why would you want to with Basel III, is
    where I am going with this, put more weight on that ice at a
    time when things have not improved where, I guess, any way that
    you have not estimated they would be at this point. My
    understanding is that you, Fed, probably understood, inflation
    would be almost under control or at least better than it is
    right now, and the economy would be a little bit more stable,
    unemployment will be going up but yet, that has got to factor
    in your decisionmaking on Basel III, the state of the economy
    and where the economy is likely going to be in the next 3 or 4
    months really not getting better.
        Mr. Barr. Thank you, Congressman. Let me say a little bit
    about the economy and a little bit about Basel III. On the
    economy overall, inflation has come down over the last 2 years
    from a high of 7.1 percent to 2.7 percent on a personal
    consumption expenditures (PCE) basis today. We still have more
    work to do to get it down to 2 percent. We are cognizant of the
    effect this has on the economy. It is important for us to be
    able to achieve that lower inflation in order to have stable
    employment----
        Mr. Meuser. But the real question is not on the session on
    the economy--excuse me--but why Basel III with the state of
    affairs?
        Mr. Barr. With respect to Basel III, we are not trying to
    decide whether a capital rule is appropriate for 3 months from
    now. We are trying to decide over the long term through the
    economic cycle what is the right balance of risk and reward
    tradeoffs in that space. So we are designing for the long----
        Mr. Meuser. It is factoring into your decisionmaking. Can
    we agree that it is factoring----
        Mr. Barr. Pardon me?
        Mr. Meuser. The current affairs, as they are, are factoring
    into your decisionmaking related to Basel III.
        Mr. Barr. We do not think in the short term about the
    economy. We think over the long term what is the right way of
    judging the health of the economy.
        Mr. Meuser. All right. So you are going to ignore the state
    of affairs and just continue ahead based upon other things
    related to Basel III?
        Mr. Barr. We are not at all going to ignore the state of
    affairs.
        Mr. Meuser. Okay. Okay. So you are not going to ignore it.
        Mr. Barr. Our job is to really take all the comments in and
    to assess those as we are thinking about the----
        Mr. Meuser. That will be good. That will be good. We have
    talked about this, and that will be good. That is what is very
    important, particularly from small business, which does most of
    the employment.
        Mr. Barr. I am happy to follow up with you.
        Mr. Meuser. All right. Great. Thanks. Chairman, I wanted to
    speak to you today about the business payroll, the Deposit
    Insurance, but in light of everything else here. Was anyone
    fired along the course of this situation at FDIC?
        Mr. Gruenberg. We have had four individuals this year.
        Mr. Meuser. Did you fire them?
        Mr. Gruenberg. The Agency issued a termination.
        Mr. Meuser. Lawsuits? Is this going to cost the taxpayer a
    lot of money in lawsuits? There have got to be lawsuits.
        Mr. Gruenberg. I do not know what recourse individuals may
    take.
        Mr. Meuser. You do not know? I was secretary of revenue in
    Pennsylvania. I knew every instance of any trouble whatsoever.
    You do not know? Then we had 2,500 employees. You got 10,000.
    That is not that many.
        Mr. Gruenberg. I am simply indicating these four
    individuals who are separated from the Agency.
        Mr. Meuser. See, that is just unacceptable. I mean, think
    about it, right? Let me ask you a question. If one of your
    regional offices you got a report like this or rumors or
    complaints over the last couple of years at one of your
    regional offices, would that regional director be held
    responsible by you? Would you fire him? Would you throw them
    out as quickly as you could?
        Mr. Gruenberg. We have had changes in four of our regional
    directors since those reports came out.
        Mr. Meuser. Since the report came out last Thursday?
        Mr. Gruenberg. No, no. I am sorry. The news reports last
    year.
        Mr. Meuser. Okay. I yield back, Mr. Chairman. Thank you,
    Mr. Chairman. I yield back.
        Chairman McHenry. The gentleman's time has expired. We will
    now go to the gentleman from Wisconsin, Mr. Fitzgerald.
        Mr. Fitzgerald. Thank you, chairman. We are obviously all
    appalled at the findings of the report into the toxic culture
    at the FDIC. Quite honestly, I cannot believe you are sitting
    here today before the committee. I thought you would have
    resigned already. One FDIC employee reported how she feared for
    her own physical safety, so we are not just talking about the
    harassment. If you have employees that feel that way, it is far
    more serious than I think we could even describe here and in
    the short period of time that we have been given. I mean, you
    cannot consider the FDIC a good work environment right now for
    employees, specifically women, do you?
        Mr. Gruenberg. We have a lot of work to do, Congressman.
        Mr. Fitzgerald. Would you feel comfortable if your own
    daughter worked at FDIC?
        Mr. Gruenberg. Yes, and then we have many employees who do
    have daughters working at the FDIC.
        Mr. Fitzgerald. Well, I think I join a long line of Members
    of Congress that simply wish that you would resign and turn
    leadership over to someone who may be more competent and have a
    better handle on the issues within the FDIC.
        I have a few questions for some other witnesses. I have
    been pleased to see that some of my colleagues on the other
    side of the aisle see the problem with Basel implementation
    proposal. Rather than going back to the drawing board, some of
    my colleagues are pushing only for the narrow carve-out from
    increased capital requirements for green energy tax credits
    from the Inflation Reduction Act. Mr. Barr, this is directed to
    you.
        So I think you would likely see that there are some
    tradeoffs necessary to prevent kind of any financial crisis
    that does not help families likely to obtain a mortgage under
    the proposal, which is something I have just been personally
    focused on. However, if such a carve-out is granted to address
    only one of the many problems in your proposal, while much of
    it remains intact, what message would that send not just on the
    independence of the Federal Reserve, but to families who may
    have more difficulty getting a mortgage, or a small business
    who would see reduced access to credit, because I feel like
    that is really at the heart of a lot of issues that have
    emerged is the lack of the ability of what we considered a
    wealth builder, which is homeownership and small businesses
    being able to flourish. I am wondering if you have any comments
    about that.
        Mr. Barr. Thank you, Congressman. We take very seriously
    the comments that we got on the proposal. We expect to make
    material changes, broad changes to it. I will say even the
    proposal, as proposed, would have a very, very small effect on
    the price of credit in the economy, including with respect to
    mortgages and small business, but we heard those comments very
    much. We are looking at the prospect of making changes on all
    three aspects of the rule with respect to credit, operational
    risk, and market risk and we are working through the substance
    of that now.
        Mr. Fitzgerald. Do you think the consequences of the merger
    delays could significantly harm both kinds of acquiring
    institutions and the targets, which could cause greater
    operational risk, I guess you could say, whether it is
    increased costs or even reputational kind of concerns? Do you
    think, with kind of this prolonged uncertainty, what effect do
    you think it is having right now?
        Mr. Barr. Well, most mergers that we review at the Federal
    Reserve, the median merger application approval time is in
    under 2 months, so most mergers go through quite smoothly and
    easily. We do have much more complex cases often involving
    larger institutions where either we need to gather more
    information or there are difficulties in the application itself
    that have to be worked through, and we have to meet the
    congressional factors for approval or disapproval. Again, most
    mergers are pretty straightforward. Some mergers are much more
    complicated.
        Mr. Fitzgerald. If there is something discovered, how do
    you guys typically handle? Do you circle back then and re-
    address these concerns or how was that initially kind of
    addressed, and, ultimately, with the idea of maybe there is an
    opportunity to kind of make a change to the initial
    application?
        Mr. Barr. Yes, Congressman, there is a lot of conversation
    back and forth if the application initially presents issues.
    Those can sometimes be addressed through the process. If there
    is information lacking, those can sometimes be addressed
    through the process, and at the end of the day, we need to meet
    the congressional five objectives that are laid out for us.
        Mr. Fitzgerald. Very good. Thank you. I yield back, Mr.
    Chairman.
        Chairman McHenry. The gentleman yields back. I will now
    recognize the gentleman from New York, Mr. Garbarino, for 5
    minutes.
        Mr. Garbarino. Thank you, Mr. Chairman. Thank you to the
    witnesses for being here today.
        Vice Chair Barr, I would like to follow up on a question
    that Representative Timmons asked you about the interaction
    between the long-term debt and the Basel III Endgame proposals.
    To be direct, do you plan to finalize your Basel proposal
    before you finalize the long-term debt proposal?
        Mr. Barr. We have not made any procedural decisions. As I
    indicated earlier, we are really focused on the substance, now.
    we got a lot of substantive comments on both the Basel III
    Endgame and long-term debt. We are working our way through
    those. We are looking at the interaction across all of our
    rulemakings, and we will make a decision on process after we
    make sure we have landed properly on substance.
        Mr. Garbarino. All right. Given how interrelated these
    rules are, I think the long-term debt proposal should not be
    finalized before Basel III Endgame and Basel III needs to be
    re-proposed with the new notice and comment period as required
    by the Administrative Procedure Act.
        Comptroller Hsu, I know the FDIC, which you sit as a Board
    member, has looked at changes to passivity agreements. I am
    concerned about the potential negative impacts these changes
    could have on access to bank capital, especially at the time of
    massive changes you are proposing on the Basel front. I am also
    concerned about jeopardizing investor access to index funds and
    retail investors are counting on those funds for retirements.
    Are you concerned about the potential negative impact on bank
    capital? Is this something that you guys have examined?
        Mr. Hsu. Thank you for the question. The issue recently
    came to the FDIC Board for a vote, and there was a very lively
    discussion of the issues. My view is that those issues warrant
    careful discussion, deliberation, particularly across the three
    agencies, to the extent that all three agencies are often
    involved in ownership issues with banks.
        Mr. Garbarino. So you all discussed the potential negative
    impact this would have on bank capital?
        Mr. Hsu. There are a range of views with regard to
    passivity, and I think that the liveliness of that discussion
    kind of highlighted how there is stuff we have to work through.
        Mr. Garbarino. Okay. Chairman Gruenberg, do you share those
    concerns as well?
        Mr. Gruenberg. As Comptroller Hsu indicated, there was a
    lively discussion at our Board meeting. No conclusion was
    reached. There were a variety of views, so this is something
    that I think the Board is going to have to continue to engage
    on.
        Mr. Garbarino. Back to Vice Chair Barr. I would like to
    move on to the Fed's proposal to adjust the G-SIB surcharge
    calculation. In 2015, when the Fed first issued the surcharge,
    the Board acknowledged that a bank holding companies' method to
    score may be affected by economic growth that does not
    represent an increase in systemic risk. This fact, the Board
    said it will periodically review the coefficients and make
    adjustments as appropriate, but to my knowledge, I do not think
    it has done so yet. Why release a proposal for public comment
    that omits this important discussion for consideration in your
    latest proposed rule?
        Mr. Barr. Pardon me. We did receive comment on the proposal
    that went to this question about how to calculate the
    coefficient. We are looking at that comment along with the
    other comments we received on the proposal. The proposal also
    addressed narrowing the buckets of the G-SIB surcharge and
    avoiding the problem of window dressing, as well as a number of
    technical adjustments to how we think about calculating the G-
    SIB surcharge. We are taking all of that comment on board. We
    are in the process of thinking through that now.
        Mr. Garbarino. So before you released the proposal for
    public comment, you all discussed the coefficients and whether
    adjustments would be appropriate?
        Mr. Barr. I am sorry. Before we released the proposal?
        Mr. Garbarino. Before, yes. I am just wondering if this was
    all discussed before you opened it up for additional comment.
        Mr. Barr. You know what? I do not think it would be
    appropriate to talk about internal conversations at the Federal
    Reserve. I am certainly aware of the issue.
        Mr. Garbarino. Okay. I appreciate that. I am going to run
    out of time, so I am just going to make a statement here. I
    would like to follow up with Chairman Gruenberg, and I am going
    to issue a more detailed question. Hopefully, you will respond
    to it on what appears to be the FDIC's hostile aggression
    toward banks who partner with fintechs. I have heard from
    several banks, and what they have shared with me and what we
    are witnessing is an overly adversarial regulatory environment
    that is using enforcement action to discourage banks from
    partnering with fintechs. I will say that I find this
    troubling, as I am sure a lot of my colleagues do, as the
    FDIC's posture will impact the development of what could be
    innovative products and services that benefit consumers and
    businesses, especially in New York and around the country. I
    would have more detailed question that I hope to get a response
    from you on, but with that, Chairman, I yield back.
        Chairman McHenry. The gentleman yields back. The gentlelady
    from California, Mrs. Kim, is recognized for 5 minutes.
        Mrs. Kim. Thank you, Mr. Chairman. I know it has been
    covered by both sides of the aisle, but I want to register my
    serious concerns with the FDIC's cultural, discriminatory, and
    moral issues laid out in the Cleary report. Mr. Gruenberg,
    having heard several of my colleagues already address this and
    taking that into consideration, I would like to ask you to
    reconsider and gracefully maybe resign to give the FDIC new
    respective leadership to enact much-needed internal reforms.
    You do not need to respond to that, but I want you to
    reconsider that seriously.
        According to Chamber of Commerce letter from February
    signed by one of the Chamber of Commerce in my city, my
    district, Yorba Linda, one of their surveys found that 68
    percent of business owners believe that an increase in bank
    capital requirement would be damaging to their businesses and
    given the concerns that businesses have with a bank capital
    increase, I was bothered when I read the May 1 Bloomberg
    article that made a number of claims of the flaw the Basel III
    Endgame proposal. One of the claims is that key officials
    decided to adjust the original proposal rather than start over.
    Another claim says that you are planning to be done as soon as
    August. Mr. Barr, given the Fed statement to Bloomberg refuting
    claims, would it be fair to assume that it was not someone at
    the Fed leaking it to the reporter?
        Mr. Barr. I have no idea why the reporter wrote that. We
    issued our statement to make it clear that we have made no
    decisions about procedure. We are very focused on the substance
    and making sure we get the substance right.
        Mrs. Kim. Let me ask you, Mr. Hsu. Do you have any reason
    to believe it was someone at the OCC leaking the info?
        Mr. Hsu. No.
        Mrs. Kim. What about you, Mr. Gruenberg? Are you aware of
    who was the source of the claims made in the article? It seems
    to me that whoever was leaking this information was trying to
    put pressure on other banking agencies. Is that a fair read?
        Mr. Gruenberg. I cannot speak to the motivations, but I am
    not aware of who is the source of the information.
        Mrs. Kim. Mr. Gruenberg, the Fed is open and actively
    considering a full re-proposal of the Basel Endgame proposal.
    Just last month, Chair Powell testified right here in our
    committee that they are aware of the potential for significant
    negative economic impact. The Federal Trade Commission (FTC),
    however, is reluctant to consider a re-proposal and is pushing
    for it to be finalized. Do you think a re-proposal is
    appropriate, and where do you stand on the benefits of a re-
    proposal?
        Mr. Gruenberg. I think as Vice Chair Barr indicated, the
    three agencies right now are focused on trying to reach
    agreement on the substance of a rulemaking and the decision on
    process going forward. I think we will have to decide after we
    reach closure on the substance, so I think it is, candidly, an
    open question at this point.
        Mrs. Kim. Well, I am going to switch to another topic here.
    What is the average time for issuing reports of examination
    following the date of the exit meeting, and how does this
    differ for those banks that are active in FinTech space?
    Question to you, Mr. Gruenberg.
        Mr. Gruenberg. I will be happy to get back to you on that
    question, Congresswoman. I just want to check on the particular
    record to give you accurate information. I am happy to do that.
        Mrs. Kim. I am concerned by the disproportionate
    enforcement actions on fintechs and about what that can do to
    give the customers' opinions, options, and access to
    innovation, so I would urge regulatory parity for innovators.
    Mr. Barr, in your testimony, you mentioned that the Fed
    continues to work to improve the discount window tool. Can you
    give us some thoughts about how you are thinking about
    improving it?
        Mr. Barr. Thank you very much for the question. Liquidity
    provision by the Federal Reserve has been an absolute bedrock
    for the financial system. Since the founding of the Federal
    Reserve, it did provide the underpinning for the Bank Term
    Funding Program and discount window borrowing last spring, but
    what we have heard from a number of banks is that there are
    procedural issues and they are working with the discount
    window, that could be improved. We are going to get more
    systematic impact from banks about those issues. One of the
    areas that, for example, we are working on is that banks said
    it would be good to have an online portal. So we have started
    having an online portal to engage with the banks----
        Mrs. Kim. We had this conversation when you came before our
    committee before too, right? I would ask you to look into the
    stigma that was associated with the use of the discount window
    and its limited operations with institutions working on the
    East Pacific Time Zone, like where I am from. Thank you, and my
    time is up. Thank you.
        Chairman McHenry. The gentleman from Nebraska, Mr. Flood,
    is recognized for 5 minutes.
        Mr. Flood. Thank you, Mr. Chairman. Acting Comptroller Hsu,
    you have spoken a few times in the last year about the
    separation of banking and commerce. From an activity's
    perspective, can you expound on where that line is?
    Specifically, I want to know from you, where do payment
    activities fall on the banking and commerce spectrum?
        Mr. Hsu. Sure. I think one way to think about it is banking
    consists of three services that are bundled together:
    facilitating payments, making loans, and taking deposits.
    Essentially, when banks are chartered, those are three
    activities that are bundled within the bank. When payments
    become unbundled from that on its own, that is commerce. That
    is not banking. What is happening sometimes is that those
    payment activities that get unbundled are sometimes being re-
    bundled outside of the bank perimeter that, to me, starts to
    approximate banking outside of the bank regulatory perimeter,
    and it warrants monitoring.
        Mr. Flood. Can you give me an example of re-bundled?
        Mr. Hsu. Sure. So a payments company may start off
    providing payment services that are very narrowly defined as
    payment services, and then over time, it would say we can hold
    your cash as if it is a deposit and provide it with yield. Then
    we can also offer a loan, though that re-bundling of services
    looks awfully similar to banking.
        Mr. Flood. Thank you very much. Let me pivot quickly to
    bank fintech partnerships. I am going to direct these questions
    to Chairman Gruenberg. I have stated in this committee
    previously that I feel bank fintech partnerships are important.
    I represent a rural state. We have mostly all community banks,
    very few regionals, very few--no G-SIBs. I mean, there are
    connections there, but I worry about these bank fintech
    partnerships not being available to community banks and only
    the largest banks in the Nation. I understand that sometimes a
    partnership with a fintech firm can introduce new risks, and I
    appreciate that there needs to be some framework for oversight
    of that. However, I have heard that in some cases, examiners
    are interpreting the new interagency guidance on this topic is
    more of a one-size-fits-all checklist.
        So here is the question, Mr. Chairman. The broad
    application of regulations under the third-party risk guidance
    and Novel Activities Program has raised some concerns among
    stakeholders that regulators might be pushing to reduce or even
    dissolve existing bank fintech partnerships in favor of some
    more traditional banking operations. Is this a
    misinterpretation of the FDIC's intentions? If it is, would you
    please clarify what your intentions are and whether or not your
    agency supports banks partnering with financially sound and
    compliant financial technology companies?
        Mr. Gruenberg. Thank you, Congressman. Candidly, I think it
    is a misinterpretation. As I indicated in response to a
    previous question, most banks manage third-party relationships,
    including third-party relationships with fintechs, in an
    appropriate way. They have met risk management
    responsibilities. If that third party is undertaking services
    provided by the bank as well as consumer protection
    obligations, most banks manage those well and we are supportive
    of them. There are a few instances in which some banks have
    overreached, quite frankly, and gotten themselves into some
    difficulty, as you indicate, and then it becomes a matter of
    supervisory attention but as a general matter, we are
    supportive of those relationships as long as they are managed
    appropriately and take into account the guidance that you
    referenced.
        Mr. Flood. Thank you. Chairman Gruenberg, on June 6, 2023,
    the Federal Reserve, the FDIC, and the OCC issued final
    guidance regarding risk management expectations for banks
    partnering with fintechs. While prior third-party risk
    management guidance included supplemental materials published
    close to the finalization date, there was a delay in issuing an
    aid specifically tailored to aid the community banks in
    complying with this June 2023 guidance. Can you explain the
    reasons for that delay?
        Mr. Gruenberg. Not offhand, Congressman. I will be glad to
    get back to you in regard to that.
        Mr. Flood. Thank you very much.
        Mr. Flood. With that, I yield back.
        Chairman McHenry. The gentleman yields back. I would like
    to thank the panel for their testimony. I think there have been
    some notable calls, Mr. Gruenberg, for you to reappear before
    the committee from my Democrat colleagues. I will consult with
    the minority party on the committee about that and I want to
    thank all of you for your testimony today. These are important
    positions. The focus should not just be on cleaning up
    mismanagement, but it should be about the safety and soundness
    of our financial institution. I am glad that is of bipartisan
    concern.
        Without objection, all members will have 5 legislative days
    within which to submit additional written questions for the
    witnesses to the chair. The questions will be forwarded to the
    witnesses for response. I ask our witnesses to respond no later
    than June 15.

        [The information referred to can be found in the appendix.]

        Chairman McHenry. Without objection, the committee is
    adjourned.

        [Whereupon, at 1:32 p.m., the committee was adjourned.]

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