[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF PRUDENTIAL REGULATORS
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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
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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
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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
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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:]
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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:]
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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:]
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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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