Sherrod Brown Chairs Senate Banking Committee Hearing On Oversight Of Financial Regulators

7 months ago

On Thursday, Sen. Sherrod Brown (D-OH) chaired a Senate Banking Committee on Financial regulator oversight.

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Transcript

00:00:00 to ensure it serves all Americans.

00:00:02 Hearing comes one week after the release

00:00:04 of the independent review of sexual harassment

00:00:06 and workplace misconduct at the FDIC.

00:00:10 Our view made clear that FDIC has serious, long-running

00:00:14 problems.

00:00:15 For far too long, its leaders failed

00:00:16 to take action to protect the FDIC's most valuable resource.

00:00:21 That is its workers.

00:00:22 The review details episodes of harassment, discrimination,

00:00:26 other misconduct that no one should ever

00:00:28 have to endure, especially in the workplace,

00:00:31 and that can never be tolerated, period.

00:00:35 Chair Gruenberg, you owe workers at the FDIC,

00:00:38 at this committee, and the American people

00:00:41 clear answers and decisive action.

00:00:44 That includes your plan for restoring the FDIC's culture

00:00:47 and regaining the trust of your employees,

00:00:50 the steps you will take to put an end to workplace

00:00:52 misconduct, harassment, and discrimination,

00:00:54 and to ensure that victims are not silenced,

00:00:57 and how you will ensure that perpetrators are finally

00:01:00 held accountable.

00:01:02 The FDIC can't fulfill its mission

00:01:04 of maintaining stability and public confidence

00:01:06 in the nation's financial system until the issues raised

00:01:10 in the independent review are fixed.

00:01:12 Failure is not an option.

00:01:15 Chair Gruenberg, I hope you recognize this moment

00:01:17 for what it is, a crisis.

00:01:19 Every FDIC employee, every American

00:01:21 deserves a workplace free of harassment and discrimination.

00:01:24 And the public should be able to have confidence

00:01:26 that the people at this agency can focus on their jobs.

00:01:31 When workers face a toxic culture, it hurts the agency.

00:01:34 It hurts its mission.

00:01:35 Workers don't speak up when they spot problems,

00:01:38 if they're afraid of retaliation.

00:01:39 It's not a small internal problem.

00:01:42 It affects the public.

00:01:44 Most Americans don't think much about the FDIC.

00:01:46 They shouldn't have to.

00:01:47 That's the whole point, for people

00:01:49 to have confidence that their money is safe in the bank

00:01:52 without having to give it any thought.

00:01:54 And that's why the job of this agency is so crucial.

00:01:57 The FDIC prevented the Great Recession

00:02:00 from becoming a Great Depression after the 2008 financial

00:02:04 crisis.

00:02:05 The FDIC's action was crucial after the collapse

00:02:07 of Silicon Valley Bank, and Signature Bank

00:02:10 threatened to create a domino effect of bank failures.

00:02:14 We need an effective, strong leader at this agency

00:02:16 to ensure that its workers can continue

00:02:19 to protect Americans' hard-earned money and savings.

00:02:22 Chair Gruenberg, it's up to you to prove to the public

00:02:25 and to your employees that you are that leader

00:02:28 and are able to restore confidence at FDIC.

00:02:31 The management challenges at FDIC

00:02:33 only make it that much harder for the agency

00:02:35 to focus on the crucial work it's doing,

00:02:38 along with the Federal Reserve and the OCC.

00:02:41 In the last year since the collapse of SVB and Signature

00:02:43 Bank, your agencies have helped make our banking system safer

00:02:48 and more resilient.

00:02:49 The Fed, the FDIC, and OCC issued the Basel III

00:02:53 endgame capital proposal to protect Americans

00:02:56 from another financial crisis.

00:02:58 We must ensure the largest banks have enough capital

00:03:01 to prevent another taxpayer-funded Wall Street

00:03:04 bailout.

00:03:04 That's what these rules do, and they

00:03:06 make sure that banks can continue

00:03:08 to lend to their communities in good times and in bad.

00:03:12 The proposal recognizes the systemic importance

00:03:14 of large banks like Silicon Valley Bank

00:03:17 that are not as big as Wall Street megabanks,

00:03:19 but still can do real damage to our economy when they fail.

00:03:23 Of course, the industry and its allies on Capitol Hill

00:03:26 have trotted out the same old, tired, and always well-funded

00:03:30 arguments.

00:03:31 The reality is that the largest banks

00:03:33 have been telling their shareholders and Wall Street

00:03:34 analysts that they'll be able to handle the capital

00:03:37 rules without a problem.

00:03:39 They've bragged about how they've remained wildly

00:03:41 profitable, all the while comfortably meeting

00:03:44 the projected capital levels required

00:03:46 under the proposed rule.

00:03:47 If this all sounds familiar, this committee

00:03:49 hosted the CEOs from the biggest banks.

00:03:52 Last fall, we've done it now three years in a row.

00:03:54 Not a single CEO, not a single CEO

00:03:57 of the country's largest banks, told us

00:03:59 they'd be unable to meet the capital levels required

00:04:02 under the proposal.

00:04:03 That's why it's imperative that your agency finalize

00:04:06 a strong capital rule that protects Americans

00:04:09 and doesn't reward Wall Street's whining.

00:04:13 The FDIC and OCC are also working

00:04:15 to rein in the risky incentive-based compensation

00:04:18 structures that have time and time again

00:04:20 brought our banking system to the brink of collapse.

00:04:22 Wall Street firms set up a system

00:04:25 that rewards traders for exactly the kind of risky behavior

00:04:28 that serves no benefit to the economy,

00:04:32 just puts other people's money at risk.

00:04:34 We saw it in 2008.

00:04:36 This model essentially tanked the economy

00:04:38 and ruined people's lives.

00:04:39 We saw it again with the failure of SVB.

00:04:42 Last year, this new rule can't go forward

00:04:45 without the Federal Reserve joining the process.

00:04:47 The Fed must know what's at stake.

00:04:49 Its own report on Silicon Valley Bank

00:04:51 noted how incentive-based compensation encouraged

00:04:55 excessive risk-taking that eventually

00:04:57 led to the bank's failure.

00:04:59 Mr. Barr, I look forward to seeing the Fed join this effort

00:05:02 as soon as possible.

00:05:03 We've talked extensively about the importance of that.

00:05:06 It's also why the Senate must pass our RECOUP Act, which

00:05:10 this committee passed last year.

00:05:12 Ranking member and I and our staffs

00:05:14 wrote it together, 21 to 2, to ensure

00:05:17 reckless executives who wreck their banks

00:05:19 face real accountability.

00:05:21 Finally, we need action to address alarming trends

00:05:23 in the banking industry.

00:05:24 Over the last several decades, we've lost thousands of banks,

00:05:27 while the largest ones have grown

00:05:29 to control hundreds of billions, or even now,

00:05:32 trillions in assets.

00:05:33 A strong merger review process prevents banks

00:05:36 from growing dangerously through acquisitions or mergers.

00:05:40 Americans can't afford mergers that pave the way for banks

00:05:43 to take out competitors, to close branches,

00:05:46 to lay off employees.

00:05:47 We've seen that in Louisiana and North Carolina and South

00:05:50 Carolina and South Dakota--

00:05:53 you're South Dakota, right--

00:05:54 and Ohio and Nevada.

00:05:57 Wall Street bankers-- the FDIC have

00:06:00 begun to review the merger process.

00:06:02 I expect them to take steps to fix this.

00:06:04 Wall Street bankers crashed the economy in 2008.

00:06:07 Americans are still paying for it more than a decade

00:06:09 and a half later.

00:06:10 It's why your agencies and the women and men who work there

00:06:13 remain so important.

00:06:16 It's vital they're able to do their job serving the public

00:06:19 free from fear of harassment, free from workplace

00:06:21 misconduct.

00:06:22 And only you as leaders are responsible for what

00:06:25 happens at the agencies which you lead.

00:06:28 I expect to hear from Chair Gruenberg specifically

00:06:31 on what you plan to do to make fundamental changes to the FDIC

00:06:35 and its culture.

00:06:36 Senator Scott.

00:06:37 Thank you, Mr. Chairman.

00:06:38 Thank you to the witnesses for being here today.

00:06:40 There's no greater responsibility

00:06:43 that we have as public servants to make sure

00:06:46 that we represent the interests of the American people

00:06:48 and that we do it well, that we do it with character

00:06:50 and with integrity.

00:06:51 No greater responsibility.

00:06:53 That responsibility starts here and now

00:06:56 in addressing what your employees, Chairman Gruenberg,

00:07:00 describe as a hostile, abusive, and unprofessional workplace.

00:07:07 And Chairman Brown, I think we actually

00:07:09 need a single hearing solely focused on the concerns

00:07:15 that the employees of the FDIC has

00:07:19 with the leadership of Chairman Gruenberg.

00:07:21 Because the men and women of the FDIC

00:07:25 working to safeguard our financial security

00:07:29 deserve a healthy workplace.

00:07:33 They deserve to be heard, to be seen.

00:07:38 They deserve a safe and equitable workplace.

00:07:42 But most of all, they deserve to be treated with respect.

00:07:49 We've all seen the 200 plus pages of the special report.

00:07:53 We all saw yesterday morning's grilling across the Capitol.

00:07:57 And Marty, you've heard me say this to you directly.

00:08:01 You should resign.

00:08:05 Your employees do not have confidence in you.

00:08:11 And this is not a single incident.

00:08:14 This spans over a decade plus of your leadership at the FDIC.

00:08:22 So I don't need to go into your failures

00:08:25 and the complete lack of management

00:08:27 while you've been at the FDIC.

00:08:30 I want to talk about the people, your employees,

00:08:35 and what they have done

00:08:37 and what they have had to go through.

00:08:40 How can you justify allowing supervisors

00:08:48 to refer to disabled veterans as Captain McNasty?

00:08:58 We're talking about a veteran who lost part of his leg

00:09:06 in service to our country.

00:09:10 And to work in a hostile work environment

00:09:15 where he is referred to as Captain McNasty

00:09:22 is just not just wrong, but disgusting.

00:09:28 To think about the chilling reports that say employees

00:09:36 and supervisors were permitted to mock the fact

00:09:41 that this employee used a wheelchair.

00:09:46 What kind of environment and culture

00:09:51 and how long does it have to go on

00:09:54 before it becomes commonplace to make fun,

00:10:01 goad veterans who serve this nation

00:10:07 at great personal expense?

00:10:12 Or when an employee reported that for a period of three years,

00:10:17 a senior examiner would sexualize her every time he could.

00:10:25 And he behaved similarly with other colleagues

00:10:29 and bank employees,

00:10:30 including asking to see photos of their daughters

00:10:34 and whether or not those daughters were single.

00:10:40 But it's not just your management team.

00:10:43 You yourself set the example

00:10:46 when you were absolutely irate and attacked your employee.

00:10:51 Or another FDIC employee stating that they had a meeting with you

00:10:57 and it was awful and felt very personal

00:11:01 that employees are made to cry

00:11:04 as if it's some badge of honor making your employees cry.

00:11:08 And people after person after person wanting to quit.

00:11:16 Others described your conduct as embarrassing and inappropriate.

00:11:20 One person said they'll likely be demoted.

00:11:23 And if this is what it takes, they're out.

00:11:29 One thing I learned from running my own business

00:11:32 is that if you don't take care of your employees,

00:11:36 they can't take care of the customer.

00:11:39 And the customers of the FDIC,

00:11:42 they're the American people.

00:11:46 Mr. Greenberg, during your hearing yesterday,

00:11:48 you stated that it doesn't matter if you believe

00:11:52 that you can change the FDIC's culture.

00:11:55 It matters if the employees believe

00:11:57 that you can change the FDIC culture.

00:12:02 They don't.

00:12:04 Whistleblower after whistleblower,

00:12:08 employee after employee have drawn the same conclusion.

00:12:14 I would like to submit for the record a statement.

00:12:17 Mr. Chairman, I'd like to submit for the record a statement

00:12:21 from a collection of FDIC whistleblowers

00:12:23 expressing their lack of confidence

00:12:25 in Mr. Greenberg's ability to change

00:12:27 the toxicity of the agency

00:12:28 and their doubt that he is the right man for the job.

00:12:32 Without objection.

00:12:34 Leadership carries with it the responsibility of stewardship.

00:12:38 Your sheep are lost and your fields riddled with weeds.

00:12:44 In 2021, President Biden warned his staff,

00:12:48 "If you're ever working with me

00:12:50 and I hear you treat another with disrespect,

00:12:54 I promise I will fire you on the spot."

00:12:56 And he did.

00:12:58 He fired the Inspector General Martin Dickman

00:13:01 of the U.S. Railroad Retirement Board

00:13:03 for evidence that he created a toxic work environment

00:13:07 and engaged in abusive treatment,

00:13:09 including using crude and inappropriate language

00:13:12 like slurs and belittling employees.

00:13:14 I know I'm out of time.

00:13:16 And the FDIC in their special report

00:13:19 described you as harsh, aggressive,

00:13:24 and interacting with your staff

00:13:25 in a demeaning and inappropriate manner,

00:13:28 having a temper and causing employees

00:13:30 to feel disrespected, disparaged, and verbally attacked.

00:13:35 I can only conclude with one question.

00:13:41 What makes you so different than the Inspector General?

00:13:46 Is it politics?

00:13:48 Is it the fact that you are a necessary and easy vote

00:13:54 for the Biden administration's economic policy agenda?

00:14:00 I think the answer is yes.

00:14:03 -Thanks, Senator Scott.

00:14:04 Thanks for your remarks.

00:14:05 I think we can agree that no public employee,

00:14:08 whether in the White House or the FDIC,

00:14:12 should ever criticize or make fun of a disabled veteran.

00:14:17 We'll hear testimony today from the heads

00:14:18 of three federal banking agencies --

00:14:21 Michael Barr, Vice Chair for Supervision

00:14:23 at the Board of Governors of the Federal Reserve System;

00:14:25 Martin Gruenberg, Chair of the Federal Deposit

00:14:27 Insurance Corporation; and Michael Hsu,

00:14:30 Acting Comptroller of the Currency;

00:14:31 Chairman Todd Harper of the National Credit

00:14:33 Union Association Administration,

00:14:35 excuse me, originally intended to be here,

00:14:37 but is unable to join us due to extenuating circumstances.

00:14:41 I ask unanimous consent to enter Chairman Harper's statement

00:14:45 into the record without objection.

00:14:47 Thank you. Thank you, my colleagues.

00:14:50 Thanks for the witnesses for your service

00:14:52 and your testimony.

00:14:52 Vice Chair Barr, please proceed.

00:14:57 Chairman Brown, Ranking Member Scott,

00:14:59 and other members of the committee,

00:15:01 thank you for the opportunity to testify

00:15:03 on the Federal Reserve's supervisory and regulatory

00:15:05 activities.

00:15:07 Accompanying my testimony is the Federal Reserve's

00:15:10 semi-annual supervision and regulation report.

00:15:13 Today, I will discuss current conditions in the banking

00:15:15 sector, supervisory activities, and some

00:15:18 of our recent regulatory proposals.

00:15:21 Overall, the banking system remains sound and resilient.

00:15:25 Banks continue to report capital and liquidity ratios

00:15:28 above minimum regulatory levels.

00:15:30 Overall, asset quality remains generally sound.

00:15:34 Capital ratios increased throughout 2023,

00:15:37 leaving the system better positioned

00:15:39 to weather potential losses.

00:15:42 Liquidity conditions overall are stable.

00:15:45 Notably, liquid assets on bank balance sheets

00:15:47 remained above their 10-year average throughout 2023.

00:15:52 Additionally, there has been a decrease

00:15:54 in the share of uninsured deposits in the system.

00:15:57 However, both supervisors and banks

00:15:59 must remain vigilant and ready for expected and unexpected

00:16:03 stresses, as presently there are several risks

00:16:06 we are monitoring.

00:16:08 For example, delinquency rates are

00:16:10 rising among certain commercial real estate loans,

00:16:13 such as those backed by offices, and some consumer loan sectors.

00:16:18 CRE delinquencies are now at a five-year high.

00:16:22 Credit card and auto loan delinquencies have been rising.

00:16:26 In response to rising delinquencies,

00:16:28 banks have increased loan loss provisions.

00:16:31 On this basis, combined with their capital positions,

00:16:34 the banking sector as a whole should

00:16:36 be prepared to absorb loan losses that may materialize

00:16:40 and continue fulfilling its vital role,

00:16:42 providing credit to households and businesses.

00:16:45 The Federal Reserve continues to monitor

00:16:47 these conditions carefully.

00:16:50 It has been a little over a year since the sudden failure of SVB

00:16:54 and ensuing stress in the banking system, events that

00:16:58 highlighted the need to improve the speed, force,

00:17:00 and agility of supervision to better align with the risk,

00:17:04 size, and complexity of supervised banks

00:17:07 as appropriate.

00:17:09 We have been making progress on these goals.

00:17:11 First, we are working to ensure supervision intensifies

00:17:14 at the right pace as a bank grows in size and complexity.

00:17:19 Second, we are modifying supervisory processes

00:17:22 so that once issues are identified,

00:17:24 they are addressed quickly by both banks and supervisors.

00:17:28 Third, we are finding ways to better incorporate

00:17:31 forward-looking risk analysis into supervision.

00:17:35 The lessons learned from SVB are not only

00:17:37 applicable to our supervisory framework.

00:17:40 Certain aspects of the failure show

00:17:42 that enhancements to our regulatory framework

00:17:44 would benefit the safety and soundness of our banking

00:17:47 system.

00:17:48 One of these enhancements was already in process

00:17:50 several months before SVB's failure

00:17:53 through an advance notice of proposed rulemaking,

00:17:56 expanding the application of long-term debt requirements

00:17:59 to additional large banks.

00:18:01 Subsequently, the board, the FDIC, and the OCC

00:18:04 followed up with a proposed rule that

00:18:06 would increase the options available within the resolution

00:18:09 process and enhance financial stability.

00:18:13 We are going through comments now

00:18:15 that we received on this proposal carefully.

00:18:18 Another important area is liquidity risk management.

00:18:22 A striking feature of last year's bank stress

00:18:24 was that SVB, Signature, and First Republic

00:18:27 struggled to cope with unprecedented deposit outflows.

00:18:31 Banks found it difficult to monetize their held-to-maturity

00:18:34 securities to repo transactions under severe stress

00:18:38 and were not adequately prepared to utilize the Federal Reserve's

00:18:41 discount window.

00:18:42 We are exploring targeted adjustments

00:18:44 to our regulatory framework that would

00:18:46 address each of these concerns.

00:18:49 The Federal Reserve's lending to banks

00:18:51 through the discount window plays an important role

00:18:53 in supporting the liquidity and stability of the banking

00:18:55 system and the effective implementation

00:18:57 of monetary policy.

00:18:59 We are reaching out to a wide range

00:19:01 of depository institutions of all sizes

00:19:04 to learn from their experiences with the discount window

00:19:07 in order to improve our operations.

00:19:10 Turning to capital, a safe and sound banking system

00:19:13 is crucial to a healthy economy, and capital

00:19:16 is foundational to safety and soundness.

00:19:19 A well-capitalized banking system

00:19:21 reduces the probability that stressful conditions result

00:19:24 in financial crises, which inflict

00:19:27 devastating economic costs and suffering for families

00:19:30 and businesses all across the country.

00:19:34 Since my last testimony, we have received

00:19:36 numerous and meaningful comments on our capital proposal.

00:19:39 We also received additional data.

00:19:42 We are closely analyzing this information,

00:19:44 and I expect we will have a set of broad material changes

00:19:47 to the proposal that allow us to have a broad consensus in moving

00:19:51 the proposal forward.

00:19:53 The changes will enable us to have a safer financial system

00:19:56 that better serves American households and businesses.

00:20:00 Thank you.

00:20:00 Thank you, Mr. Barr.

00:20:05 Mr. Gronberg, welcome.

00:20:07 Proceed, please.

00:20:09 Thank you, Mr. Chairman.

00:20:11 Chairman Brown, Ranking Member Scott,

00:20:13 and members of the committee, thank you

00:20:15 for the opportunity today to appear before you today.

00:20:20 I'd like to focus my remarks on the FDIC's ongoing efforts

00:20:24 to transform its workplace culture.

00:20:27 Let me begin by saying that I am deeply

00:20:30 committed to the FDIC and its mission,

00:20:33 as well as to the people on whom that mission depends.

00:20:39 That is why when news reports of sexual harassment,

00:20:42 discrimination, and other misconduct surfaced last year,

00:20:47 it was essential to gain a deeper

00:20:50 understanding of the agency's workplace culture.

00:20:55 At my direction, the FDIC initiated

00:20:59 an independent third-party review

00:21:02 to determine the depth and extent of these issues.

00:21:06 Last week, the results of that review,

00:21:09 which was conducted by the law firm of Cleary Gottlieb,

00:21:13 were released.

00:21:14 The review found that for an extended period of time,

00:21:18 the FDIC has failed to provide a workplace safe

00:21:24 from sexual harassment, discrimination,

00:21:27 and other personal misconduct.

00:21:30 I accept the findings of the report.

00:21:33 And as chairman, I take full responsibility.

00:21:38 To anyone who has experienced sexual harassment,

00:21:43 discrimination, or other misconduct at the FDIC,

00:21:49 I again want to apologize and express how deeply sorry I am.

00:21:58 I also acknowledge my own failures as chairman,

00:22:03 both in failing to recognize how my temperament in meetings

00:22:08 impacted others, and for not having

00:22:11 identified deeper cultural issues at the FDIC sooner.

00:22:18 I am personally committed to addressing these issues.

00:22:22 We accept all the recommendations of this report

00:22:27 and are incorporating them into our existing action

00:22:30 plan for a safe, fair, and inclusive work environment.

00:22:35 To restore credibility with our workforce,

00:22:39 we must act swiftly on the report's recommendations

00:22:44 and demonstrate a commitment to making fundamental change.

00:22:50 For this reason, we have already begun

00:22:53 implementing several key recommendations of the report.

00:22:59 The report recommends that we identify and appoint

00:23:03 a transformation monitor who will monitor, audit,

00:23:07 and report on our implementation of the recommendations.

00:23:10 We have already begun that process

00:23:13 and will issue a request for proposals as early as this week.

00:23:18 The report also recommends that we

00:23:19 engage an independent third party

00:23:22 expert to support our efforts.

00:23:24 We have begun that process and will also

00:23:27 issue a request for proposals as early as this week.

00:23:31 The report recommends fundamental change

00:23:36 to the agency's structure and procedures

00:23:40 for receiving and investigating complaints

00:23:43 and taking disciplinary action against misconduct

00:23:47 in light of the failures of the existing

00:23:49 offices delegated those duties.

00:23:52 We will do this by proposing the establishment

00:23:55 of an independent office of professional conduct, which

00:24:00 will report directly to the FDIC board of directors.

00:24:05 It will be charged with fulfilling

00:24:07 these responsibilities, including

00:24:09 through the use of outside third parties

00:24:11 to conduct investigations.

00:24:15 The transformation monitor and independent third party expert

00:24:20 will advise us on this proposal.

00:24:23 Since December of last year, the FDIC

00:24:26 has been focused on implementing its action plan

00:24:29 to address all aspects of the issues raised in the news

00:24:32 reports last year.

00:24:34 The plan represents an agency-wide effort.

00:24:38 Many of the recommendations outlined in the report recently

00:24:42 received are already encompassed in the agency's action plan.

00:24:47 The plan is focused around three core elements--

00:24:51 providing more support and resources to victims,

00:24:55 strengthening our process for reporting and investigating

00:24:59 complaints, and improving accountability for anyone

00:25:04 who is found to engage in misconduct,

00:25:06 including through separation from the agency.

00:25:09 The proposal to establish an independent office

00:25:12 of professional conduct would advance all of these goals.

00:25:17 It is my privilege to lead and work

00:25:19 alongside everyone at the FDIC.

00:25:22 Our people are extraordinarily dedicated

00:25:26 to the agency and its mission.

00:25:29 They deserve to have a workplace where all feel

00:25:32 safe, valued, and respected.

00:25:35 There is no higher priority for me

00:25:38 than delivering on that commitment.

00:25:40 Thank you.

00:25:40 Thank you, Mr. Bloomberg.

00:25:41 Mr. Hsu, welcome.

00:25:43 Thank you, Chairman Brown.

00:25:44 Chairman Brown, Ranking Member Scott,

00:25:47 members of the committee, I'm pleased to appear

00:25:49 today to provide an update on the activities

00:25:51 and priorities of the OCC.

00:25:54 The overall condition of the federal banking system is sound.

00:25:57 OCC-supervised banks, in aggregate,

00:25:59 continue to have strong levels of regulatory capital

00:26:02 and sufficient liquidity buffers,

00:26:04 though risks from commercial real estate and interest rate

00:26:07 exposure continue to warrant attention.

00:26:09 Banks and supervisors need to remain

00:26:11 on guard against complacency, one of my top priorities

00:26:14 for the agency.

00:26:16 The OCC's Bank Supervision Operating Plan for 2024

00:26:20 highlights asset liability management, credit risk,

00:26:23 and allowance for credit losses, cybersecurity,

00:26:26 operational risk, and consumer compliance risk

00:26:28 as our key areas of focus.

00:26:30 Another priority for the OCC has been

00:26:32 promoting fairness in banking.

00:26:34 This April marked the one-year anniversary of OCC guidance

00:26:38 to assist banks in managing risks associated

00:26:40 with overdraft protection programs.

00:26:42 Since the OCC's heightened attention on overdrafts began,

00:26:45 the overdraft fees charged by OCC-regulated banks,

00:26:48 in aggregate, have fallen over 40%.

00:26:52 Adapting to digitalization has been a third priority

00:26:54 for the agency.

00:26:55 We recognize, for instance, that community banks

00:26:58 may face hurdles in risk managing

00:27:00 their third-party relationships, including with fintechs.

00:27:04 Earlier this month, the OCC, Federal Reserve, and FDIC

00:27:08 published a third-party risk management guide

00:27:10 for community banks with examples

00:27:12 of innovative approaches to conducting due diligence

00:27:15 and assessing new fintech companies.

00:27:18 The OCC supports a diverse and dynamic banking system

00:27:22 and continues its focus on updating our bank merger

00:27:25 analytical frameworks.

00:27:26 We remain committed to working with our interagency peers,

00:27:30 including the Department of Justice, on this effort.

00:27:33 To increase transparency, on January 29,

00:27:35 we released for comment a proposed policy statement

00:27:38 on bank mergers.

00:27:39 We recently extended the comment period to June 15.

00:27:42 My written testimony provides greater detail

00:27:44 on these and other activities of the OCC.

00:27:48 As co-chair of the FDIC's Special Review Committee,

00:27:51 I would like to address briefly the recently released

00:27:54 independent report on harassment and misconduct at the FDIC.

00:27:59 The top priority for us all must be

00:28:01 protecting the staff of the FDIC and putting people first.

00:28:06 The harassment and misconduct detailed in the report

00:28:09 are totally unacceptable.

00:28:11 The number and scope of allegations,

00:28:13 the patterns of misconduct, and the longstanding culture

00:28:16 revealed by the review are highly disturbing

00:28:19 and need to be fixed immediately.

00:28:22 The root causes and recommendations

00:28:23 cited in the report provide a clear roadmap

00:28:27 for what needs to be done and why.

00:28:30 That is where our attention must be focused

00:28:32 to ensure the FDIC is a safe workplace

00:28:35 for all of its employees.

00:28:37 As a member of the FDIC board, I am

00:28:39 committed to the transformation called for in the report.

00:28:43 I am especially supportive of the report's recommendation

00:28:46 to engage an external expert and establish

00:28:49 an independent monitor to ensure that the agency's efforts are

00:28:52 tracked and that accountability is enforced.

00:28:56 I also believe that Chairman Gruenberg has accepted

00:28:58 responsibility for his and the FDIC's past failings

00:29:02 and that he is fully committed to lead the agency in taking

00:29:05 the actions necessary to make it a safe place for everyone

00:29:08 to work.

00:29:09 Thank you.

00:29:10 I'll be happy to answer any questions.

00:29:13 Thank you, Mr. Hsu.

00:29:16 Chair Gruenberg, you offered an action plan last year

00:29:18 to fix the agency, but last week's report made clear

00:29:21 much more is needed.

00:29:23 One particularly concerning item is the third party report

00:29:26 that some employees don't believe

00:29:28 that last year's action plan will bring about real results.

00:29:32 They said, quote, "they reported experiencing or observing

00:29:35 interpersonal misconduct by a number of the managers

00:29:38 currently participating in the action plan."

00:29:41 Pretty egregious statement.

00:29:43 Yes or no, can you commit to us today

00:29:45 that you will review any accusations of misconduct

00:29:48 against the managers, the managers charged

00:29:51 with developing the action plan, and take

00:29:53 strong appropriate action to hold them accountable?

00:29:55 Yes, Mr. Chairman.

00:29:56 Thank you.

00:29:57 What do you say to the employees who, understandably,

00:30:00 considering the years of history, this agency, what

00:30:03 do you say to the employees who don't trust the steps you're

00:30:05 taking to reform the agency?

00:30:08 Mr. Chairman, we are committed to implementing

00:30:13 the recommendations of the new report

00:30:16 and to making fundamental structural change in the way

00:30:21 misconduct is addressed at the FDIC.

00:30:25 Most fundamentally, and I think this

00:30:27 gets to the core of the issues raised,

00:30:30 we have to cut the good old boys network that

00:30:36 is serving as an impediment to employees coming forward

00:30:42 and reporting experiences of abusive treatment.

00:30:47 And we can do that by establishing

00:30:51 a new independent office at the FDIC

00:30:55 outside of the existing organizational structure,

00:31:00 accountable directly to the board.

00:31:03 That would assume all of the responsibilities

00:31:08 for dealing with misconduct at the FDIC.

00:31:10 That would include receiving complaints from employees,

00:31:16 providing employees the support and protection and assurance

00:31:22 against any concerns about retaliation

00:31:26 that is necessary for employees to come forward.

00:31:30 It would assure independent investigations of complaints

00:31:36 by outside third parties.

00:31:41 And it would impose a strengthened disciplinary

00:31:45 process that would be swift and sure and transparent

00:31:53 and have only one focus, justice for the victim.

00:32:00 And if we can do when we do those three things,

00:32:05 that will make a dramatic impact on how these matters are

00:32:11 handled at the FDIC.

00:32:12 We have, as the report notes, existing offices

00:32:16 with those responsibilities.

00:32:19 Those offices have failed.

00:32:22 And we need to move to a new office

00:32:27 outside of the existing structure that

00:32:29 will provide the kind of independence and assurance

00:32:35 that our employees need to hold individuals

00:32:38 accountable for misconduct that may occur.

00:32:41 Understanding your credibility starts

00:32:43 by ensuring that managers accused of wrongdoing

00:32:46 are not allowed to police their own behavior.

00:32:48 It starts with that.

00:32:49 You understand that.

00:32:50 Mr. Bloomberg, as you know, making the fundamental changes

00:32:53 necessary to repair FDIC reputation,

00:32:57 more important, the culture, equally important,

00:32:59 the culture is going to take input and action from everyone

00:33:02 at the agency.

00:33:02 How do you plan to engage regularly

00:33:04 with the entire workforce, particularly employees

00:33:07 who have reported harassment, reported discrimination,

00:33:10 reported other misconduct, to make sure you bring about

00:33:13 lasting change and end this good old boy network you mentioned,

00:33:16 this toxic culture that permeates the agency?

00:33:19 From the outset of our efforts last December

00:33:23 to address these issues, we have made this an agency-wide effort.

00:33:29 We have invited employees across the agency

00:33:33 through expressions of interest to volunteer,

00:33:36 to participate in our efforts to address this issue.

00:33:40 We have had significant response from employees

00:33:44 both in Washington and in our regional offices.

00:33:48 And we are committed.

00:33:49 I think it is critical for employees across the agency

00:33:54 to participate and have a sense of ownership

00:34:00 in terms of our efforts to address these issues.

00:34:03 I think that's critical.

00:34:05 And we have worked closely with all of our employee resource

00:34:08 groups.

00:34:10 They have had direct input and participation

00:34:13 in developing our action plan and in our response

00:34:18 to the recommendations of the new report.

00:34:20 So this will be, has been, and will continue

00:34:23 to be an agency-wide effort.

00:34:26 And that means you will commit to bringing

00:34:28 all the major policy changes necessary to implement

00:34:31 the recommendations of this report, including steps

00:34:34 you've outlined here today, to the board for input

00:34:36 and approval.

00:34:37 Yes.

00:34:38 The board will be the oversight and governance,

00:34:40 oversee the governance of this whole effort.

00:34:43 I will be watching.

00:34:44 This committee will be watching.

00:34:45 Senator Scott will be watching.

00:34:46 I was told by a Fed Reserve governor some years ago

00:34:50 that he said, watch what I'm doing

00:34:52 and make sure you know I'm watching,

00:34:54 you're watching what I'm doing, loud and clear.

00:34:57 Thank you.

00:34:58 Senator Scott.

00:34:59 Thank you, Mr. Chairman.

00:35:00 Let me turn my attention to Vice Chair Barr

00:35:03 for a minute here on the, I think,

00:35:05 the importance of Basel III being re-proposed.

00:35:09 Honestly, I think slicing and dicing it,

00:35:11 trying to figure out how to make some changes

00:35:14 and put it back on the market, I think

00:35:16 that's probably the wrong strategy, the wrong approach.

00:35:18 From my perspective, it would be much better

00:35:20 to have a full re-proposal, allowing people

00:35:23 to have another window of opportunity

00:35:25 to actually have input in the process of the changes.

00:35:29 Frankly, Basel III to me, thankfully, Fed, you,

00:35:34 Chairman Powell, made a prudent decision

00:35:37 to take another look at the proposal.

00:35:39 That's a prudent decision.

00:35:41 I think a better approach is to actually put it back out

00:35:44 on the market for comment so that more people have

00:35:47 a better engagement in this process.

00:35:50 If anything other than that, I think,

00:35:52 is nibbling around the edges and will not

00:35:54 produce the type of product that is in America's best interest.

00:35:58 Thoughts?

00:36:00 Thank you very much, Senator Scott.

00:36:01 We're really focused right now on the substance.

00:36:05 We had a lot of deep and thoughtful comments

00:36:07 on the proposal.

00:36:08 We're trying to work our way through that substance

00:36:11 now, reach agreement across the agencies

00:36:15 and with my board on the substance.

00:36:17 And after we're done with that process of understanding

00:36:20 where we want to go on the substance,

00:36:24 we'll then determine what process

00:36:26 we think is appropriate.

00:36:28 If a re-proposal ends up being appropriate, we'll do that.

00:36:32 We're not yet at the stage where we're

00:36:34 thinking about precisely what process we'll use.

00:36:37 I certainly think the more--

00:36:40 obviously, you understand this, but for the Americans

00:36:42 watching C-SPAN for reasons that go beyond my ability

00:36:47 to comprehend, I think it's important for us

00:36:50 to note that the capital standards within Basel III

00:36:53 park so much capital on the sidelines

00:36:55 that those Americans perhaps watching C-SPAN looking

00:36:58 for their first mortgage will have less capital

00:37:02 to actually become a part of the American dream

00:37:05 to actually earn equity in this nation by having a home.

00:37:09 Those small businesses like me that

00:37:11 changed my financial life and the life of my family,

00:37:14 specifically my mom's, by starting a business

00:37:16 and being successful, that capital

00:37:18 that allows folks like me coming from poverty

00:37:21 to experience the American dream because you have

00:37:23 the ability to get a loan, parking more capital

00:37:26 on the sidelines really is a way of disenfranchising

00:37:30 more Americans and not necessarily making

00:37:32 the system more fair.

00:37:34 Thank you for your comments, and thank you for the call

00:37:36 and having a conversation about this really important

00:37:39 underlying issue that will have real impact on our economy.

00:37:42 To Chairman Grunberg, the offices haven't failed.

00:37:48 You have.

00:37:49 It's that simple.

00:37:51 An environment that is so corrosive, so toxic,

00:37:55 that employees--

00:37:56 I just want to read this from the report

00:37:58 because the level of intimidation

00:38:02 that is embedded in the culture after a decade

00:38:04 of your leadership, you can't just unravel it.

00:38:07 You can't unscramble that egg.

00:38:10 Going to classes and looking for ways

00:38:14 to have anger management and solve that problem,

00:38:19 if it takes you a decade to recognize that,

00:38:20 perhaps you need a whole few years away from the FDIC

00:38:26 to figure that out on your own.

00:38:28 But why punish the FDIC and the American people,

00:38:31 and frankly, the employees?

00:38:34 Here's a quote from one employee.

00:38:36 "Nobody trusts those in charge.

00:38:39 And even though it is not getting

00:38:42 into the hands of senior executive,

00:38:44 I'm using VPN and someone else's cell phone to write this,

00:38:50 I still fear that talking will come back to haunt me."

00:38:56 Those are chilling words.

00:38:59 I have so many complaints and concerns through the report

00:39:04 that it's just hard to read them all.

00:39:06 A woman learned that a field office supervisor

00:39:09 had romantic feelings for her and would send her flowers.

00:39:13 He would demand to know who she was talking to

00:39:16 and what she was talking about.

00:39:18 He called and texted her at work and at home.

00:39:22 During mandatory telework, he would insist

00:39:25 that she stay on team videos for hours on end,

00:39:30 directing her to leave the video on

00:39:33 when she left to use the restroom.

00:39:36 She became so fearful, she went to the police

00:39:39 and considered seeking a restraining order.

00:39:41 She hesitated to file a complaint with the FDIC

00:39:45 because she believed the agency would believe him over her

00:39:52 if she reported it.

00:39:53 Eventually, when she did work up the courage to file,

00:39:57 she said managers dismissed her concerns.

00:40:00 The report concludes she continues to live in fear.

00:40:09 You got 5,000 employees plus and the strategy

00:40:15 is to give them more pay, more promotion

00:40:19 and to transfer for folks maybe in leadership.

00:40:24 If after a decade of toxicity and corrosion,

00:40:30 5,000 employees, the best we can do

00:40:34 is find a scapegoat, shift the blame.

00:40:38 You should resign.

00:40:40 Thank you, Senator Scott.

00:40:47 Senator Cortez-Masto is recognized.

00:40:49 Thank you.

00:40:50 Thank you, Mr. Chairman.

00:40:51 Thank you, gentlemen, for being here.

00:40:53 I'm going to focus my questions today with Director Gruenberg.

00:40:59 I appreciate you coming in to visit with me.

00:41:02 Let me start here.

00:41:03 And you're hearing this constantly.

00:41:04 Obviously, this is an opportunity

00:41:07 to do right by the employees of the FDIC.

00:41:11 There's almost 6,000 employees of the FDIC.

00:41:15 And there is no doubt that an environment, a workplace that

00:41:21 has longstanding misconduct, harassment, discrimination,

00:41:24 and lack of full accountability at the FDIC

00:41:27 is absolutely unacceptable.

00:41:31 Now, here's the concern that I have.

00:41:33 This has been longstanding.

00:41:36 This has been longstanding.

00:41:37 And words are not enough now.

00:41:39 You can come here and testify and talk

00:41:41 about what you want to do.

00:41:42 But we've heard that before.

00:41:43 I've heard that under previous administrations,

00:41:46 previous chairs, previous leadership.

00:41:48 In fact, we have a previous report that came out

00:41:54 that absolutely from the Office of Inspector General, July 2020,

00:41:59 identified these issues.

00:42:02 Recommendations were made.

00:42:04 And I will say, even at that time, the leadership--

00:42:08 it wasn't you-- but the leadership at the FDIC

00:42:10 questioned some of those recommendations.

00:42:14 Now, fast forward.

00:42:16 We still have an issue.

00:42:18 It's not just about structural change.

00:42:19 It is about a workplace culture that we need to address.

00:42:23 And I do believe that if you are paying attention to what

00:42:26 is happening here, and you've read the root analysis,

00:42:29 you've read the report from Cleary Gottlieb,

00:42:31 and you've read the recommendations,

00:42:33 there is a clear blueprint for what to do.

00:42:36 And our goal here, and mine, is to hold you

00:42:39 accountable for that.

00:42:41 And the entire board and the entire leadership.

00:42:44 Because now's the time to focus on the employees

00:42:48 and their workplace.

00:42:50 Let me just say this.

00:42:53 The root cause analysis, lack of accountability,

00:42:56 failure to hold employees accountable for misconduct--

00:42:59 that was addressed in the previous report.

00:43:00 That still hasn't been addressed.

00:43:03 Employees do not see individuals alleged

00:43:05 to have engaged in misconduct face any consequences.

00:43:07 They also develop doubts about the integrity

00:43:10 of the disciplinary process itself, fear of retaliation.

00:43:15 And that's just the structural changes we need to make.

00:43:18 Now we have workplace issues.

00:43:19 Let me just say, the workplace culture has to be addressed.

00:43:25 And you're going to have to come forward and tell us

00:43:27 how you're going to do that.

00:43:29 Let me just note this, though.

00:43:30 In the report, it notes that the FDIC and its leadership

00:43:35 have not sufficiently focused on and prioritized

00:43:38 workplace culture.

00:43:39 And historical efforts to address it

00:43:41 have not been sustained in any way to make lasting changes.

00:43:44 It is not the case, as some have expressed,

00:43:47 that problems related to the workplace culture,

00:43:50 including with respect to sexual harassment,

00:43:52 only came apparent through the recent media reports.

00:43:56 There have been prior cultural change and improvement

00:43:59 initiatives that the FDIC have instituted,

00:44:01 in part because of some of the same issues identified

00:44:04 in the report.

00:44:05 Going back to 2008, this is a systemic failure

00:44:10 over the years, over the years.

00:44:13 And it is time to take action.

00:44:14 So my first question to you is, based on the recommendations

00:44:19 from this report, do you anticipate--

00:44:22 and I hope you say yes to every single one--

00:44:25 that you're going to implement every single recommendation

00:44:29 that is in this report, this Gottlieb report?

00:44:33 One of the recommendations to address

00:44:35 the cultural transformation is to hire

00:44:38 an independent individual to monitor and audit

00:44:42 any recommendations the FDIC adopts.

00:44:45 You agree to that?

00:44:48 Let me just say, OK, that secondly, there is also

00:44:52 a recommendation that the FDIC should retain

00:44:57 an independent third party with substantial and credible

00:45:00 experience in the topics uncovered by this report

00:45:04 to advise in the implementation of the recommendations.

00:45:07 That's a separate independent third party.

00:45:09 Do you agree to that?

00:45:10 Yes, and we've begun the process of implementing

00:45:13 both of those recommendations, Senator.

00:45:14 So how do you anticipate--

00:45:18 let me ask both of you, because Director Soot,

00:45:21 you're on the board.

00:45:24 How do you anticipate not just the cultural changes

00:45:26 and the structural changes--

00:45:28 excuse me, the structural changes

00:45:29 that you're talking about.

00:45:30 How do you anticipate changing the culture?

00:45:33 This is not about words anymore.

00:45:34 This is about showing action to the federal employees

00:45:37 there that you're doing something about it.

00:45:39 So what are you specifically going to do?

00:45:42 If I may start, and maybe then Mike could add,

00:45:47 those are the hardest, because you

00:45:50 have to change people's attitudes and behaviors, which

00:45:55 is the hardest part of this work.

00:45:58 I believe the structural changes are critical,

00:46:01 both in independence and giving employees

00:46:04 a sense of confidence and protection to utilize them.

00:46:07 We have a key additional structural issue,

00:46:10 which is the decentralized nature

00:46:13 of our organizational structure.

00:46:15 With 3,000 banks, we supervise 70 field offices

00:46:19 around the country.

00:46:20 Let me ask you this.

00:46:20 Getting control?

00:46:21 Cut to the chase, because my time is running out.

00:46:22 Have you held anybody accountable so far?

00:46:24 Yes, four employees have been separated this year,

00:46:27 and we've made management changes.

00:46:29 And as a result of this establishing a new office,

00:46:32 there will be additional management changes.

00:46:35 And we've started a program of training,

00:46:39 in-person training, for all 6,000 employees at the FDIC.

00:46:44 We began with the managers of those 70 field offices, which

00:46:48 is, in some sense, the locus of the issue.

00:46:51 We've had all of our senior executives, including myself,

00:46:55 go through that training.

00:46:57 And we are now working through the rest of our workforce.

00:47:00 By November of this year, we will complete that in-person

00:47:02 training for every employee.

00:47:04 So at a minimum, we'll have a baseline

00:47:08 of understanding for every employee what

00:47:11 is sexual harassment, how to recognize it, and most

00:47:16 importantly--

00:47:16 I appreciate that, Mr. Bloomberg.

00:47:17 But it's more than just training.

00:47:19 I understand.

00:47:19 It is more than just training.

00:47:20 I understand.

00:47:21 That's the start of it.

00:47:22 I agree.

00:47:22 So you've got to do more.

00:47:24 And I apologize.

00:47:25 I'm going over my time.

00:47:26 But this is such an important issue.

00:47:28 And Mr. Su, you're on the board.

00:47:29 What are your thoughts on this?

00:47:30 Because there has to be a change in the workplace culture.

00:47:33 It is more than just training for individuals.

00:47:37 It's imperative that every single recommendation

00:47:40 be carried out in full, in a timely manner, immediately.

00:47:44 And those have to be actions that

00:47:46 are credible to the staff of the FDIC.

00:47:50 In particular, the fear of retaliation

00:47:52 creates a cycle, because if there's a fear of retaliation,

00:47:55 there's no reporting.

00:47:56 If there's no reporting, there's no action.

00:47:58 And so this has been very clear on the report.

00:48:00 And I agree with you.

00:48:02 This is all dependent on actions and outcomes.

00:48:05 And I think that's where the focus has to be.

00:48:07 I'm done.

00:48:07 And I thank you for allowing me to go to my time.

00:48:09 I am just going to say this.

00:48:10 This should be the last report we deal

00:48:11 with on this particular issue.

00:48:13 And we are going to hold you accountable.

00:48:15 The entire board, the entire management, FDIC,

00:48:18 you need to make changes.

00:48:20 And this is something that clearly

00:48:22 has happened over years and decades, unfortunately.

00:48:24 But it's time to make the change.

00:48:26 And we need to hold you accountable.

00:48:28 From my perspective, I'm not going to let go.

00:48:30 This has to change.

00:48:32 Has to change.

00:48:34 Thank you, Senator Cortes.

00:48:35 And I also send around to South Dakota is recognized.

00:48:37 Thank you, Mr. Chairman.

00:48:39 Mr. Greenberg, yesterday, my House colleagues

00:48:45 and today my Senate colleagues have all

00:48:47 been taking you to task on how under your 19-year tenure

00:48:54 you have failed to protect employees

00:48:55 and create a culture of professionalism at the FDIC.

00:49:00 Instead of that, your agency is known

00:49:07 as a place that fosters a culture that is, in their words,

00:49:11 misogynistic, patriarchal, and outdated,

00:49:16 a place where favoritism is common

00:49:18 and senior executives with well-known reputations

00:49:22 of inappropriate workplace behavior

00:49:24 enjoy long careers with no consequences.

00:49:30 You, in fact, are one of those senior executives

00:49:33 who have subjected employees to bullying

00:49:37 and your explosive temper, which are detailed

00:49:41 in multiple pages of this report, 91, 92, 93, 94,

00:49:48 are all included.

00:49:50 And yet you have faced no consequences.

00:49:55 Culture starts at the top.

00:49:59 Now, those aren't my words, Mr. Chair.

00:50:01 Those are the words of the employees at the FDIC.

00:50:07 And you can read that on page 6 of the report.

00:50:10 Your employees clearly have no faith

00:50:16 that you can meaningfully lead for changes at the FDIC.

00:50:22 And quite frankly, neither do I. I

00:50:25 think that you should resign for the good of the institution.

00:50:34 Mr. Barr, in agreement with the Chairman Powell,

00:50:41 you have stated on page 5 of your written testimony

00:50:44 that you expect a series of broad material changes

00:50:48 to the Basel III endgame proposal.

00:50:52 I think myself and many members of this committee

00:50:55 would welcome that.

00:50:57 Do you agree that each section of the proposal,

00:51:00 covering all three risk stripes of the market risk,

00:51:04 operational risk, credit risk, that they

00:51:07 need broad and material revisions based on the comments

00:51:10 that you have received?

00:51:12 Yes, I think if you look across all three areas,

00:51:15 I do expect some significant changes in the proposal.

00:51:19 And by definition, the material in this particular case

00:51:23 does mean significant change.

00:51:25 Would you say the commenters that have made--

00:51:28 and I think there's been a lot of comments made--

00:51:30 do you think they'd be able to anticipate

00:51:32 all of the potential changes that you're considering?

00:51:36 We're going through the substantive work now.

00:51:38 If we find an area where the Administrative Procedures

00:51:42 Act would suggest that we haven't met that standard,

00:51:44 that would be one of the factors we'd think about process

00:51:47 going forward.

00:51:48 But right now, we really are just

00:51:50 focused on the substance, making sure we get the substance

00:51:53 right.

00:51:54 And then we'll turn to the question of what's

00:51:56 the right next step in the process.

00:51:58 But fair to say, and I believe probably 97%

00:52:02 of all of the comments that you receive

00:52:05 were not favorable to the proposal that you were making.

00:52:09 And the vast majority of them wanted

00:52:11 you to simply eliminate it, or they

00:52:13 wanted substantive significant changes

00:52:15 within those proposed regulations.

00:52:18 Would that be fair to say?

00:52:20 I haven't done that calculation.

00:52:22 I've heard that number reported before,

00:52:23 but I haven't myself looked at that.

00:52:25 Naturally, the reason why I'm asking the question--

00:52:27 and I think you're on it--

00:52:29 is that you may very well have to withdraw and repropose

00:52:35 that proposed regulation if these are significant changes

00:52:40 so that there could be other comments made in the future.

00:52:43 Would you agree with that?

00:52:45 As I said, we haven't reached the question yet

00:52:48 of what the right process is.

00:52:50 We're really focused on the substance.

00:52:51 We're working our way through that.

00:52:53 After we reach a conclusion about the substance,

00:52:56 we'll turn to the question of what

00:52:58 the appropriate process is from that point on.

00:53:01 But you do expect, as I think both you and the chairman

00:53:04 have indicated, that you would probably

00:53:06 have significant changes to the proposal.

00:53:11 Yes, Chair Powell and I have both said

00:53:12 we expect broad material changes.

00:53:15 And I noticed that you indicated that that would trigger

00:53:18 additional administrative actions

00:53:21 under administrative procedures at this time.

00:53:24 What I said, Senator, is that we haven't made any decision

00:53:27 about the process.

00:53:28 We'll follow the Administrative Procedures Act.

00:53:31 We'll take care of whatever the appropriate process is.

00:53:34 But we haven't reached any judgment about the process

00:53:36 at this time.

00:53:37 OK, and then I'm just curious.

00:53:40 I think yesterday with the House Financial Services Committee,

00:53:44 you indicated that policy changes to the proposal,

00:53:47 just as you've indicated here today,

00:53:49 they haven't been finalized yet.

00:53:51 But as you go through and you're trying to identify this,

00:53:55 has there been a framework or a term sheet

00:53:59 or some sort of a layout, laying out

00:54:03 the differences or the contours to changes

00:54:06 that other agencies that you're working with,

00:54:08 that they've been able to see and to work over?

00:54:10 We're working very closely.

00:54:12 I'm working very closely with my sister agencies at the FDIC

00:54:17 and OCC on a set of reforms to that proposal

00:54:21 and also in discussions with my board.

00:54:23 If you do have that, would that be

00:54:25 available to this committee for review as well?

00:54:28 That's not a normal process that we would conduct.

00:54:31 We go through the process among the agencies.

00:54:34 We develop whatever substantive proposal we are.

00:54:37 And we put it out for the public to comment.

00:54:39 And then, of course, we welcome, as we have in this instance,

00:54:44 comments from senators and from members of the House.

00:54:47 Those comments that we get from this committee

00:54:50 and from others are part of the comments

00:54:52 that we review when we evaluate our proposal.

00:54:56 Well, most certainly a substitute

00:54:58 of this may be for changes.

00:54:59 It seems like it would be appropriate for this oversight

00:55:01 committee to at least have access to the questions

00:55:04 that you may very well be asking other committees,

00:55:06 or at least if there is a working

00:55:09 sheet, a worksheet of some sort.

00:55:10 It seems that that would be fair game to at least share

00:55:12 with us as well.

00:55:14 Senator, as I said, the normal process

00:55:16 here in administrative rulemaking

00:55:18 is to conduct it the way we're conducting it.

00:55:20 And I expect we are going to continue

00:55:22 to conduct it according to the normal process.

00:55:25 Thank you.

00:55:26 Thank you, Mr. Chairman.

00:55:27 Senator Warner from Virginia is recognized.

00:55:30 Thank you, Mr. Chairman.

00:55:32 Mr. Bloomberg, I'm not going to echo what all my comments,

00:55:34 but my colleagues have said.

00:55:37 Behavior's got to change.

00:55:40 It needs to be a meaningful plan.

00:55:41 I think some of us have withheld full comments or full calls

00:55:47 the way some of my colleagues have.

00:55:49 But the plan has to be real and credible.

00:55:51 So far, we've not seen that.

00:55:53 I also want to build, Mr. Barr, on somewhat where

00:56:00 Senator Rounds is going.

00:56:01 I've written you separately on the Basel III Accord.

00:56:04 I think the reason why there's been such pushback

00:56:07 is that, at least early on, there was not

00:56:11 kind of the evidence-based documentation of what

00:56:14 would be the cumulative effect of these rules,

00:56:17 these rule changes, particularly in terms

00:56:20 of credit availability.

00:56:21 So I hope, before the final rules come out,

00:56:24 you would make those estimates public.

00:56:29 I think, again, echoing what Senator Rounds says,

00:56:31 we need that from an oversight standpoint.

00:56:33 And I do hope, again, that there will

00:56:35 be an evidence-based indication of the risks and benefits

00:56:41 of these proposed rules.

00:56:42 I know you're going through a reworking process.

00:56:44 I know it's probably caused lots of consternation.

00:56:48 We've talked-- I've talked to you and Marty and others

00:56:51 about this.

00:56:52 But we need-- wherever you come down,

00:56:54 we're going to need that evidence-based approach.

00:56:57 And I don't think, in the initial proposal, it was there.

00:57:00 I want to actually--

00:57:02 this is going to be mostly directed at Mr. Hsu,

00:57:04 since I had from Mr. Barr and Mr. Bloomberg--

00:57:08 I asked this the last time.

00:57:09 I think one of the things, as we deal

00:57:12 with thinking about a rule structure for our banks,

00:57:17 particularly around liquidity problems,

00:57:19 the way we solve with SVB, really

00:57:24 taught us that the whole notion of stability

00:57:27 deposits and the notion of internet-based runs,

00:57:30 that we're way behind where technology has taken us.

00:57:35 Obviously, we need to make sure that we have ability

00:57:39 to prevent temporary liquidity issues from turning

00:57:45 into solvency crises.

00:57:47 And one of the things that has bothered me--

00:57:49 and I've shared this with all of you,

00:57:51 I've shared it with my colleagues on the committee--

00:57:53 is the whole beginning of the Fed,

00:57:56 the discount window was set up exactly for this circumstance.

00:58:00 But what we've seen is, at least recently,

00:58:02 it's very rarely played that role.

00:58:05 So when I say this to my colleagues on both sides,

00:58:07 I'm going to be soon introducing a bill--

00:58:09 and I've been talking to some of my Republican colleagues

00:58:13 and welcome my Democratic colleagues as well-- to reform

00:58:15 the discount window, to fight the so-called stigma that

00:58:19 goes about utilization if you use it.

00:58:22 I think this really ought to be, back

00:58:26 to the beginnings of the Fed, a more often used tool.

00:58:30 Now, the bill will implement a mandatory discount window

00:58:34 test borrowing with different tiers

00:58:36 and an exemption for those institutions

00:58:39 under a billion dollars in assets

00:58:41 and, again, other safeguards to make sure we don't put too much

00:58:44 undue burdens on small depositories.

00:58:48 But it will also require that institutions demonstrate

00:58:51 that they can use the window.

00:58:53 The SVB didn't even have procedures set up.

00:58:56 And then give regulators--

00:58:59 allow them to give proper credit in liquidity evaluations

00:59:02 for institutions that do that.

00:59:06 I think we need to look at how we keep the liquidity

00:59:08 window open at a longer basis.

00:59:12 And I'm wide open on how we can do other things to try

00:59:15 to remove the stigma issue.

00:59:19 And what the legislation will also try to do,

00:59:21 promote a more harmonized process

00:59:23 across the Federal Reserve banks and better coordination

00:59:26 between the Fed and the home loan bank boards.

00:59:30 Again, to make sure that we can get this right.

00:59:33 I got your colleagues' comments on this.

00:59:37 We've had a private conversation on this.

00:59:39 But I would like you to share whether you

00:59:42 think this kind of approach, in terms of making the liquidity

00:59:46 window, destigmatizing it, making sure institutions

00:59:49 know how to use it, and modernizing it,

00:59:53 would be a step in the right direction.

00:59:56 Absolutely.

00:59:58 I think it helps to step back and remember

01:00:01 what the problem we're trying to solve is, which is

01:00:03 that bank runs are faster.

01:00:06 Because bank runs are faster, that ability

01:00:09 to be able to use the discount window when a bank has

01:00:11 appropriate amounts of collateral

01:00:13 to be able to do so in a safe and sound manner is critical.

01:00:16 So all the steps you laid out, we're

01:00:18 happy to continue engaging with you as to how to frame that

01:00:22 so it's effective.

01:00:23 It is tricky.

01:00:24 It's a tricky problem to solve.

01:00:26 But we're committed to working with you to solve this problem

01:00:29 because we do need to solve this if we're going to address

01:00:31 the speed of bank runs.

01:00:32 Well, I have a number of times expired,

01:00:34 but I've invited my colleagues to join me on this.

01:00:37 I think before we start adding new regs and rules,

01:00:40 we ought to make sure some of the tools that were set up

01:00:42 in the first place are more fully used.

01:00:44 Thank you, Mr. Chairman.

01:00:45 Senator Ornish, Senator Kennedy of Louisiana is recognized.

01:00:53 I hope Senator Al Franken is watching today.

01:00:58 If it weren't for double standards around this place,

01:01:06 there wouldn't be any standards at all.

01:01:08 Mr. Gruenberg, have you ever heard the expression,

01:01:15 a fish rots from the head down?

01:01:18 Yes, Senator.

01:01:22 I understand you're-- I listened carefully

01:01:24 to your testimony.

01:01:26 Do I understand you to assert that you believe you're

01:01:33 the person to clean up the FDIC?

01:01:36 I do, Senator.

01:01:36 Do you also believe that Elvis is alive?

01:01:43 Not to my knowledge, Senator.

01:01:47 Do you also believe in Bigfoot?

01:01:50 No, sir.

01:01:51 No, sir.

01:01:51 Have you read this report?

01:01:57 Yes, sir.

01:01:58 You've been the chairman of the FDIC 10 of the last 13 years,

01:02:04 haven't you?

01:02:05 Yes, I have.

01:02:07 And you've been there for 20 years almost, haven't you?

01:02:10 Nearly, yes, sir.

01:02:13 And this sleaze has been going on for decades, has it not?

01:02:17 I think the report makes that finding, Senator.

01:02:20 Did you read the part of the report

01:02:23 where one of your supervisors described

01:02:29 one of your young female employees

01:02:32 as being, quote, "like a grizzly bear with tits," close quote?

01:02:39 I've read the report, Senator.

01:02:41 Did you read the part of the report

01:02:44 where one of your supervisors asked a young female employee,

01:02:52 quote, "does your husband eat you?"

01:02:57 Did you read that?

01:02:58 I have read the report, Senator.

01:02:59 Did you read the part of the report

01:03:04 where one young employee said her supervisor sent her a text?

01:03:09 You know what the text said?

01:03:11 Quote, "get naked, bitch."

01:03:14 Did you read that?

01:03:16 Yes, sir.

01:03:18 Did you read the part of the report

01:03:20 where one of your supervisors turned

01:03:25 to one of your Hispanic employees

01:03:27 and asked him to recite the Pledge of Allegiance

01:03:30 to prove that he is an American?

01:03:34 Did you read that?

01:03:35 I read it, sir.

01:03:38 You're not going to be able to clean up the FDIC

01:03:42 because you're going to be too busy

01:03:44 defending yourself in court.

01:03:48 I'm going to introduce a bill to extend the statute of limitations

01:03:53 to allow every employee at the FDIC

01:03:58 to file suit over the sexual abuse

01:04:03 and the sexual discrimination and this racism.

01:04:08 And you're going to be spending all your time in court.

01:04:12 Now, the Clary Gottlieb report doesn't think

01:04:19 you're the person to clean up the FDIC, does it?

01:04:23 I don't know that the report reaches that conclusion,

01:04:25 but it certainly has critical comments in regard to me, Senator.

01:04:28 Well, I mean, the FDIC report says that,

01:04:33 it says that even your senior leaders feel, quote,

01:04:38 "disrespected, disparaged, and treated unfairly by you."

01:04:45 Did I quote that correctly?

01:04:47 I have read the report, Senator.

01:04:48 And the Clary Gottlieb report, it goes on to say

01:04:55 that your long tenure and reputation

01:04:58 for losing your temper and bullying people, quote,

01:05:01 "presents unique challenges," close quote,

01:05:05 for you to change the agency.

01:05:09 Did you read that part?

01:05:10 I have read it, Senator.

01:05:12 And the Clary Gottlieb report also says,

01:05:15 it questions whether you have the, quote,

01:05:17 "moral authority to do so."

01:05:22 Is that correct?

01:05:24 I have read the report, Senator.

01:05:25 Yes.

01:05:30 You fixing this agency, Mr. Gruenberg,

01:05:35 is like asking Alec Baldwin to conduct a course in gun safety.

01:05:40 You ought to be ashamed of yourself.

01:05:48 And Mr. Sue, you ought to be ashamed of yourself

01:05:50 for acting like a lickspittle here today,

01:05:54 trying to defend this gentleman.

01:05:56 Have you ever read a worse report, Mr. Gruenberg,

01:06:06 in all your years?

01:06:08 It's a bad report, Senator.

01:06:10 Yeah, it's bad.

01:06:11 Look, I could go through this report.

01:06:20 I'm embarrassed to have to even read some of these --

01:06:24 some of these allegations.

01:06:27 Would you -- would --

01:06:31 these -- these folks on the first row behind you,

01:06:34 are they FDIC employees?

01:06:37 Some of them are, Senator, yes.

01:06:39 Would you like to turn around and apologize

01:06:43 to the female employees sitting behind you at the FDIC?

01:06:47 I have, Senator.

01:06:48 Would you like to do that now?

01:06:49 If you ask me to, I will.

01:06:51 I think you should.

01:06:52 Yeah.

01:06:53 And now I think you ought to resign.

01:07:01 I'm done, Mr. Chair.

01:07:03 Senator Smith from Minnesota is recognized.

01:07:07 Thank you, Mr. Chair.

01:07:08 It's ironic to me that my Republican colleague thinks

01:07:16 that Chair Gruenberg can't do his job because he will be

01:07:18 in court when the candidate --

01:07:20 his candidate for president is currently facing

01:07:23 multiple indictments and is actually in court.

01:07:28 Chair Gruenberg, you and I have had a conversation

01:07:30 about the FDIC, and as I said to you when we last spoke,

01:07:35 I believe that it can be your legacy

01:07:38 to repair the damage that has been done

01:07:39 to employees at the FDIC.

01:07:41 And knowing the agency as you do,

01:07:43 you have the potential to make the changes

01:07:47 that need to be made in this agency for the good

01:07:49 of everybody there and for this agency that I do believe

01:07:51 that you care deeply about.

01:07:52 And as you have heard, we will all

01:07:54 hold you accountable to that.

01:07:56 Mr. Barr, I wanted to direct a question to you

01:08:03 and really to everybody on the panel.

01:08:04 And this has to do with what is happening with insurance,

01:08:08 home insurance rates, surges around the country.

01:08:10 So homeowners have seen their insurance rates

01:08:13 surge in recent years.

01:08:14 And why is this happening?

01:08:16 It's happening because of bigger, more destructive,

01:08:18 and more frequent severe weather events.

01:08:21 And this, of course, is the cost of climate change.

01:08:23 And it's hitting homeowners hard.

01:08:25 A recent study by LexisNexis found

01:08:28 that 97% of catastrophic losses to homeowners in 2022

01:08:33 were caused by hail and wind and weather-related events.

01:08:36 Now, so you're probably thinking this is a big problem

01:08:39 for states like Florida or Louisiana or South Carolina.

01:08:43 And of course it is.

01:08:44 It is a huge economic problem.

01:08:46 But you may not know that it is a huge issue in the Midwest.

01:08:50 From 2016 to 2022, my home state of Minnesota

01:08:54 incurred the highest loss cost of any state

01:08:59 for severe weather events.

01:09:00 And so what does this mean?

01:09:01 It means that insurance companies are not keeping up.

01:09:04 And the cost of this rolls down to homeowners

01:09:07 in the form of massive rate hikes,

01:09:09 high costs to pay for improvements

01:09:11 on their properties.

01:09:12 Or worst case, they just lose their property insurance.

01:09:15 So my question is, obviously, these spiking costs

01:09:19 for property and casualty insurance

01:09:20 are an issue for homeowners.

01:09:22 But it also seems like it could be

01:09:24 a big issue for financial institutions who

01:09:27 need to manage this risk.

01:09:28 Would you agree with that?

01:09:29 And just tell me how you see this issue panning out

01:09:31 as a systemic risk.

01:09:33 Thank you, Senator.

01:09:34 It's an excellent question.

01:09:36 We do look carefully at the way in which the largest banks are

01:09:40 managing these kinds of risks.

01:09:42 We recently went through an exercise

01:09:44 with six of the largest banks to understand their risk

01:09:47 measurement and risk management practices.

01:09:50 And one of the things that the banks learned

01:09:52 through that process, many of them,

01:09:54 is that they did not have complete information

01:09:57 about how their properties were covered or were not

01:10:00 covered by property and casualty insurance.

01:10:04 And that, of course, affects losses to the banking sector.

01:10:08 So it is a really, I think, quite critical issue.

01:10:11 The prospect of trillions of dollars of properties

01:10:17 becoming uninsurable because of this risk

01:10:20 seems to me to be something of significant concern.

01:10:25 And I think it's very important that, as regulators,

01:10:28 you look at this issue and you think clearly

01:10:30 about what that might mean in terms of a systemic risk.

01:10:36 I also want to ask you about the Community Reinvestment Act.

01:10:40 You know that this is something that I've been

01:10:42 paying a lot of attention to.

01:10:43 I care a lot about this.

01:10:44 I think that the recently finalized updates to the CRA

01:10:48 were important and long overdue.

01:10:50 And so I'm dismayed, of course, that the rulemaking

01:10:54 has been struck down by this activist judge in a case

01:10:58 where I think plaintiffs were clearly

01:10:59 shopping for a friendly judge.

01:11:01 I'm not asking you to comment on that.

01:11:02 And I understand with pending litigation,

01:11:05 you can't comment on that.

01:11:07 But I wonder if you could maybe clarify a few things

01:11:09 about the rulemaking itself.

01:11:12 First, it is true that this was the first update to CRA

01:11:15 regulations in about 29 years.

01:11:17 Is that right?

01:11:18 That's correct.

01:11:18 And since those old rules, there's

01:11:21 been many significant changes in banking, correct?

01:11:24 I mean, the big shift to mobile and online banking

01:11:26 is just one example.

01:11:27 Yes, Senator.

01:11:28 And these new rules take into account

01:11:31 how remote lending works.

01:11:33 Is that correct?

01:11:34 Yes, the rule does do that.

01:11:35 And is it also true that these new rules are not--

01:11:38 they're not overly inclusive?

01:11:39 So for example, they don't pull in community banks that

01:11:43 still largely operate locally.

01:11:46 Well, the particular provision with respect

01:11:49 to outside lending areas applies to large banks

01:11:52 that don't have large branch bases.

01:11:55 So they're doing a lot of remote lending.

01:11:56 Right.

01:11:57 Thank you.

01:11:58 I think that it is just important

01:11:59 that we understand that a very thoughtful, in my view,

01:12:02 and tailored approach has been taken with these CRA rules that

01:12:05 reflects the realities of banking today.

01:12:08 And I hope that they will be allowed to go into effect.

01:12:10 Thank you, Mr. Chair.

01:12:12 Thank you, Senator Smith.

01:12:14 Senator Hagerty of Tennessee is recognized.

01:12:16 I will give you five extra seconds, Senator Hagerty.

01:12:30 Vice Chairman Barr, I understand that last week you

01:12:33 spoke to graduates of American University.

01:12:36 I'd like to call up part of your remarks for the group today.

01:12:40 Quote, "When things go wrong, it's your responsibility.

01:12:45 It's not somebody on your team's fault.

01:12:46 Having the ability to not point a finger at other people

01:12:50 and to point it at yourself and understand

01:12:53 that you are accountable and responsible

01:12:55 is an important part of being a leader."

01:12:59 Does that advice extend beyond college graduates

01:13:02 to leaders of federal agencies?

01:13:03 Yes, Senator.

01:13:07 I agree.

01:13:08 I agree.

01:13:09 And when a leader's team or agency is fundamentally broken,

01:13:13 serious decisions have to be taken,

01:13:16 decisions that will provide a stark test of what

01:13:18 leadership really is.

01:13:20 So Chairman Greenberg, I'd like to turn to you

01:13:22 to talk about accountability and leadership.

01:13:26 During the independent investigation of your agency,

01:13:29 roughly one in 10 FDIC employees reported, quote,

01:13:35 "experiences of sexual harassment, discrimination,

01:13:38 and other interpersonal misconduct."

01:13:41 Just the sheer volume of complaints

01:13:43 demonstrates serious managerial issues.

01:13:46 A workplace culture like this doesn't evolve overnight.

01:13:50 This is shaped by years of senior management.

01:13:54 The report even says, and I quote,

01:13:56 "culture starts at the top."

01:13:59 Well, you've been at the FDIC for nearly 20 years.

01:14:01 10 of the past 13 years, you've led the agency.

01:14:06 So my question is this.

01:14:08 If the FDIC's culture is the problem

01:14:11 and you've established this culture for nearly two decades,

01:14:15 how could you possibly be the most capable person

01:14:19 to fix this rot?

01:14:23 Senator, I have indicated that I take full responsibility.

01:14:28 I've also indicated that one of my failures

01:14:32 was not recognizing the deep-seated cultural challenge

01:14:37 the agency has previously.

01:14:40 Since last December--

01:14:41 Previously?

01:14:42 You've been there for 20 years.

01:14:43 I don't know how you could not recognize it.

01:14:46 Since last December when these reports came forward,

01:14:50 we have devoted all the resources of the agency

01:14:53 in an agency-wide effort to address them.

01:14:57 I've indicated in the third-party report that

01:15:00 was released last week was a result of my direction

01:15:04 to have an independent third-party review look

01:15:08 at the agency in whole, both Washington and the regions,

01:15:13 to try to develop an in-depth understanding of the nature

01:15:17 of the challenges the agency has.

01:15:19 Well, let's get beyond the reports

01:15:20 and the understanding.

01:15:20 Just yesterday, very concerned about this,

01:15:22 a report emerged that contains a statement from FDIC employees

01:15:26 that very clearly says-- and these are employees

01:15:28 across the political spectrum--

01:15:30 they don't believe current leadership can

01:15:31 affect the necessary changes.

01:15:33 They even left it unsigned because they're

01:15:35 afraid of reprisal.

01:15:36 That's precisely one of the issues,

01:15:38 one of the deep cultural issues that we're

01:15:39 trying to address here.

01:15:40 Leadership is necessary to do it.

01:15:43 They don't believe you can provide it.

01:15:46 This is just extraordinarily hard for, I think,

01:15:49 all of us to understand.

01:15:51 I want to ask you a different question.

01:15:54 If you were to resign your role, who would take your place?

01:15:59 I think under the statute, the vice chairman

01:16:01 would become acting chairman.

01:16:02 Is the vice chairman a Republican?

01:16:04 I believe so, Senator.

01:16:06 So I think now we're getting to the very core of what's

01:16:08 happening here.

01:16:09 This is what's going on.

01:16:10 Just yesterday, in a House hearing,

01:16:13 Representative Presley from Massachusetts

01:16:15 said the quiet part out loud.

01:16:18 She said that if you were to resign,

01:16:20 it would, quote, "jeopardize critical regulations pending

01:16:24 finalization at this agency."

01:16:26 Just let that sink in.

01:16:29 The need for immediate leadership change here

01:16:31 is so obvious.

01:16:33 The independent report here is beyond disturbing.

01:16:37 It describes abuse, discrimination

01:16:39 based on race and sex, uncontrolled anger

01:16:43 and retaliation.

01:16:46 It even reports instance of sexual harassment and rape

01:16:49 that occurred at the so-called FDIC hotel

01:16:52 across the river in Virginia.

01:16:54 It's truly remarkable that anybody on this committee

01:16:58 would be willing to ignore this report and what it so obviously

01:17:00 requires, all for a few regulations

01:17:03 in the Federal Reserve.

01:17:05 Does the Me Too movement now have an exception

01:17:08 for technical regulations?

01:17:10 Chairman Gruenberg, is saving your job

01:17:13 more important than protecting the staff

01:17:16 and the integrity of the agency that you lead?

01:17:21 Senator, I have no higher priority

01:17:24 than addressing these issues and protecting

01:17:26 the employees of the FDIC.

01:17:27 They don't believe you can do it.

01:17:29 We've been working--

01:17:30 I don't believe you can do it.

01:17:32 I believe we can.

01:17:33 We have been working on it, and it

01:17:35 has been an agency-wide effort.

01:17:36 This is the most damning report I've ever seen.

01:17:39 And I can't believe there's a willingness of anybody

01:17:41 on this committee to brush this under the table

01:17:43 just to get a regulatory agenda passed.

01:17:46 Thank you, Mr. Chairman.

01:17:48 Senator Butler of California is recognized.

01:17:51 Thank you, Mr. Chairman, for holding today's hearing.

01:17:54 And thank you to all of our witnesses.

01:17:57 First, I do want to note and appreciate,

01:18:00 Chair Gruenberg, the number of conversations

01:18:04 that you and I have been able to have.

01:18:06 And I want to state again that the findings of this report

01:18:12 are deeply disturbing and unacceptable.

01:18:15 Now, as has been noted from everyone on the dais today,

01:18:22 these are cultural challenges and experiences

01:18:29 that have been happening for decades

01:18:31 across multiple administrations, Republicans

01:18:35 and Democrat.

01:18:37 The examples that have been provided

01:18:40 in the appendix to the Gottlieb report are truly jaw-dropping.

01:18:47 Women, people of color, the LGBTQ employees, among others,

01:18:52 have been harassed, have been abused,

01:18:56 all during their employment.

01:18:58 You've heard from my colleagues that we're expecting more

01:19:00 from you.

01:19:02 And we expect that you will be doing the work

01:19:06 and taking the steps to right the ship

01:19:10 and to restore the credibility of the agency.

01:19:14 I also expect that my colleagues from both sides of the aisle

01:19:20 will be consistent in their commitment

01:19:23 to investigating and holding perpetrators

01:19:28 of sexual harassment to account and abuse,

01:19:31 whether they serve at the FDIC or they

01:19:35 seek to occupy the Oval Office.

01:19:38 It's been interesting and a bit perplexing

01:19:41 to listen to my colleagues mention

01:19:44 the notion of double standards, but also experience

01:19:47 how they have not and will not call out

01:19:51 the behavior of the former president, who

01:19:53 not only is in court today, but finds himself having already

01:19:59 been found liable for sexual assault.

01:20:04 It simply cannot be that this behavior is

01:20:06 disgusting and unacceptable for a manager at the FDIC,

01:20:11 but is willfully ignored and therefore excused

01:20:14 for a person who hopes to actually be

01:20:17 the next president of the United States.

01:20:19 What incredible hypocrisy.

01:20:22 I do have a question for you, Chair Gruenberg, on the report.

01:20:28 As I noted, one of the many tragic elements

01:20:31 of this situation is that I fear it sets us back in the progress

01:20:36 that we've made to bring more women and people of color

01:20:39 into senior roles in banking and financial services.

01:20:44 What are your specific efforts as a part of the action plan

01:20:50 that speak to those women and people of color

01:20:56 and members of the LGBTQ+ community

01:20:59 that the FDIC is a safe place for them to work?

01:21:04 Thank you, Senator.

01:21:04 That's a crucially important question from my standpoint.

01:21:09 As part of our action plan, as you may know,

01:21:12 we have a task force of female leaders at the FDIC

01:21:19 developing a strategy for strengthening our recruitment

01:21:23 efforts specifically for women and employees of color.

01:21:28 They've been working diligently on that.

01:21:31 It's a supplement to our existing efforts,

01:21:33 and we've had extensive recruitment efforts.

01:21:36 It's been a priority of mine since I've been at the FDIC

01:21:40 to expand diversity and inclusion at the FDIC.

01:21:45 It's a core objective of our action plan.

01:21:50 Thank you for that.

01:21:51 I have noted to you in our previous conversations

01:21:56 that, in my opinion and experience,

01:21:59 plans are only valuable when they make their way

01:22:02 off the shelf and the oversight that is required.

01:22:07 I would expect that we would hear from you, the monitor,

01:22:12 and other independent oversight agents

01:22:16 that you are employing as a part of the report

01:22:19 to be reporting back to this committee,

01:22:21 whether formally at the table or in writing,

01:22:24 much more frequently as the implementation moves forward.

01:22:27 Mr. Barr would like to offer a question,

01:22:31 moving from my responsibility as a national representative

01:22:37 here to truly focusing on the people of California.

01:22:41 When the Silicon Valley Bank failed

01:22:44 in March of 2023 millions of dollars

01:22:46 in loans for community projects, including affordable housing

01:22:50 projects, across California were jeopardized.

01:22:54 After purchasing SVP, First Citizens Bank

01:22:58 committed to expanding its community support in California,

01:23:02 including the provision of community reinvestment

01:23:05 grants for an affordable home mortgage subsidy program.

01:23:08 Can you talk about how the Fed has

01:23:10 been working with the San Francisco branch

01:23:13 to ensure that those supervisory failures are actually

01:23:19 moving forward in your way as of oversight

01:23:23 to ensure that those commitments to those affordable housing

01:23:26 projects are being followed through?

01:23:31 Thank you.

01:23:31 We are taking several steps to improve supervision

01:23:35 across the Federal Reserve, including

01:23:37 making sure that our risk profile feeds

01:23:41 into the way in which institutions are supervised,

01:23:45 so that as institutions grow in size and complexity,

01:23:48 they are supervised more intently.

01:23:50 We're working on our escalation framework

01:23:53 to ensure that matters are escalated promptly

01:23:56 and that banks and supervisors take action quickly

01:23:59 when that happens.

01:24:00 So these are the kinds of measures

01:24:02 that we're undertaking to make sure that supervision is

01:24:06 improved in the future.

01:24:08 Thanks, Senator Butler.

01:24:09 Senator Vance Watt.

01:24:11 Thank you, Mr. Chair, for hosting the hearing.

01:24:15 And thanks to the three witnesses for being here.

01:24:18 I know that most of my colleagues

01:24:20 have focused their attention on the report

01:24:22 of some pretty troubling personnel management

01:24:28 over at the FDIC, from sexual harassment on down.

01:24:32 And I share their concerns.

01:24:34 And what I want to focus on today

01:24:36 is whether some of the problems that have been identified

01:24:38 at the FDIC, Chair Gruenberg, actually

01:24:41 make it harder for the FDIC to do its very important job

01:24:44 in our financial system.

01:24:46 And to pick a particular hobby horse, something

01:24:49 I've been focused on, as you know,

01:24:50 in our private conversations and our public conversations,

01:24:53 we have a massive, massive problem

01:24:57 and a divergence in public information, public reporting,

01:25:01 on the failure of First Republic and how

01:25:05 it was sold to JP Morgan.

01:25:07 And unfortunately, we also have a troubling lack

01:25:11 of forthrightness from your agency

01:25:13 about some of the underlying justifications

01:25:16 for why JP Morgan was allowed to purchase First Republic

01:25:19 instead of some of the regional banks that were interested

01:25:22 in purchasing it, or instead of another option,

01:25:25 more specifically, liquidation.

01:25:27 So I want to just drill in on something.

01:25:29 So in public and in some of our conversations,

01:25:32 Chair Gruenberg, you have said that the difference

01:25:36 between the loss--

01:25:38 if First Republic went to JP Morgan versus a regional bank,

01:25:42 the loss spread was $20 billion.

01:25:45 Is that correct?

01:25:47 That was one estimate, Senator.

01:25:49 That's one estimate.

01:25:50 Other estimates that have been out there

01:25:53 have the loss ratio or the loss spread at $1 billion

01:25:58 or substantially smaller.

01:26:00 And one of the things that I did with Senator Warren,

01:26:04 one of the rare acts of bipartisanship

01:26:06 on the banking committee, is that we sent your office

01:26:09 a letter trying to sort of better understand what estimates

01:26:14 and what data points, when did the least cost analysis

01:26:17 that you use to give or to ensure

01:26:22 that JP Morgan was allowed to buy First Republic Bank.

01:26:25 Now, Chair Gruenberg, what was the FDIC's loss

01:26:29 estimate for First Republic's single family

01:26:32 residential portfolio?

01:26:33 Do you remember that?

01:26:35 Not offhand, Senator.

01:26:36 But we'd be glad to follow up with you.

01:26:39 So happy to jog your memory.

01:26:40 So FDIC staff turned over information

01:26:42 that suggested your estimate for the single family

01:26:46 residential portfolio of First Republic.

01:26:47 The loss there was $30.3 billion,

01:26:52 obviously a massive amount of money.

01:26:54 Now, based on information that my staff has uncovered,

01:26:57 sometimes with cooperation of the FDIC

01:26:59 and sometimes, Chair Gruenberg, with the absence

01:27:02 or the opposite of cooperation from the FDIC,

01:27:05 we think there's a good amount of evidence

01:27:07 that the actual loss in First Republic's single family

01:27:11 residential unit was closer to $11 or $12 billion.

01:27:14 In fact, a number of the regional banks

01:27:17 who made purchase inquiries for First Republic

01:27:21 thought it was closer to $11 or $12 billion.

01:27:23 So if you, on the one hand, think

01:27:26 that the loss in that one portfolio was $30 billion

01:27:32 and the actual answer was more like $11 or $12 billion,

01:27:36 would that lead to a significant difference

01:27:38 in how you evaluate the least cost test?

01:27:42 It might, Senator.

01:27:43 I don't know offhand the basis for the two estimates.

01:27:46 We'd obviously have to evaluate that.

01:27:48 So one thing I just want to drill down on

01:27:51 is your estimate for the loss from liquidation

01:27:55 was $16.2 billion.

01:27:57 And the JP Morgan acquisition was $13.6 billion.

01:28:02 Now, that's a difference of less than $3 billion.

01:28:05 But if you assume that the loss in the residential portfolio

01:28:10 was $11 billion or even $15 billion

01:28:13 instead of $30 billion, the least cost test

01:28:16 would have led you to liquidation.

01:28:17 And here's the thing that I worry most about.

01:28:19 So Chair Greenberg, why haven't you responded?

01:28:23 Why hasn't the FDIC, why hasn't your staff

01:28:26 responded to so many of the inquiries that we've made?

01:28:30 Some of the information that I just read back to you

01:28:32 is based on conversations with your staff.

01:28:35 Some of it is based on conversation

01:28:37 with banks or with other offices or with other financial

01:28:41 regulators because the FDIC won't actually

01:28:44 answer our questions.

01:28:45 And to sort of make this point more specifically,

01:28:48 I worry that the culture you've created at the FDIC

01:28:51 makes people terrified to answer honestly.

01:28:54 And if they're not answering honestly,

01:28:55 it's impossible for us to do our job

01:28:58 of overseeing the regulation you guys

01:28:59 do in the financial sector.

01:29:01 So very basic question.

01:29:02 Why haven't you guys been more forthright

01:29:04 in some of the questions?

01:29:05 You're just ignoring us?

01:29:06 Are you just waiting for more time?

01:29:08 Because this is important.

01:29:09 I would actually like to know what happened.

01:29:11 And I can't figure out what happened

01:29:12 because your agency won't give me the answers.

01:29:15 I appreciate the question, Senator.

01:29:17 I believe, as you indicate, we've had exchanges.

01:29:20 I believe we've tried to respond in writing

01:29:22 to the questions you've raised.

01:29:25 If they haven't been satisfactory, I'm sorry.

01:29:28 We're prepared to engage with you and your staff

01:29:30 further if that would be helpful.

01:29:32 Certainly, and I would appreciate that.

01:29:33 But just to recap here, Mr. Chairman,

01:29:35 I know I'm over my time.

01:29:37 So give me, if you would, just a minute here.

01:29:39 So to recap, in March of 2023, you and Treasury Secretary

01:29:46 Yellen worked with JP Morgan to inject $30 billion

01:29:49 into First Republic in a bid to save the bank.

01:29:54 It was in complete failure.

01:29:56 A month later, First Republic failed anyway.

01:29:59 You then allowed the concentration

01:30:02 in the financial sector by allowing JP Morgan

01:30:04 to purchase First Republic based on a wildly off-base estimate

01:30:08 of some of the losses that existed in First Republic.

01:30:11 And when our offices actually try

01:30:13 to get information to better understand this,

01:30:15 very often we've been steamrolled.

01:30:17 If that doesn't suggest a problem

01:30:19 in the culture at the FDIC, I don't know what does.

01:30:22 And I certainly would love to work with your staff on this,

01:30:24 Mr. Gruenberger.

01:30:25 I just don't know if you share that commitment.

01:30:27 Thank you.

01:30:29 Senator Van Hollen of Maryland is recognized.

01:30:31 [INAUDIBLE]

01:30:35 Senator Warnock of Georgia is recognized.

01:30:38 Thank you so very much.

01:30:39 I appreciate the kindness of Senator Van Hollen.

01:30:43 Thank you, Chair Brown.

01:30:44 Chair Gruenberg, when we spoke last week,

01:30:48 I was clear with you that I find this report deeply disturbing

01:30:55 regarding the workplace environment at FDIC,

01:31:00 the kind of harassment that employees

01:31:04 have experienced there.

01:31:06 Among other concerning conclusions,

01:31:08 the report details the sexual harassment

01:31:12 that happens there, culture that certainly didn't seem

01:31:17 to push back hard enough, racial discrimination reported

01:31:21 by many FDIC employees.

01:31:25 When we last spoke, you told me that you

01:31:27 were unaware of these allegations

01:31:31 until the Wall Street Journal article was published

01:31:36 in November 2023.

01:31:40 I have to say to you that I'm confused by this timeline

01:31:44 and how that's possible.

01:31:46 Can you clarify this for me?

01:31:48 What aspects of this toxic culture at the FDIC

01:31:53 were you unaware of before the article?

01:31:56 And what specifically did the Wall Street Journal

01:31:58 shed light on?

01:32:00 Thank you, Senator.

01:32:03 I was certainly aware that the FDIC has processes

01:32:07 for employees to make complaints,

01:32:11 have them investigated, and disciplinary action

01:32:14 result if misconduct has taken place.

01:32:18 What I-- and I acknowledged that this was a failure on my part.

01:32:24 What I did not recognize was that there

01:32:28 was a deep-seated workplace culture at the FDIC

01:32:33 underlying this.

01:32:35 And prior to those news reports, frankly,

01:32:40 I did not recognize that.

01:32:42 Those news reports brought that to light.

01:32:46 When those reports came forward, we immediately took action.

01:32:50 I requested a third-party review to get

01:32:55 a deep-seated understanding of the issue.

01:32:58 That report has just come forward.

01:33:00 And we also developed a detailed action plan

01:33:03 that we have been working on since last December.

01:33:07 But the deep-seated cultural issues

01:33:09 that are really at the base of this that have really now

01:33:12 been discussed in the report, I had not appreciated previously.

01:33:17 Yeah, I agree that it's clearly a culture issue.

01:33:21 And it's deep-seated.

01:33:24 Not only has this kind of workplace sexual harassment

01:33:30 and racial discrimination not been discouraged,

01:33:33 one could well argue, when you consider the response, that

01:33:36 has been encouraged, which is clearly concerning,

01:33:42 not only to me, but anybody who's looking at this.

01:33:45 From 2015 to 2023, of the 92 harassment complaints

01:33:52 made through the FDIC's anti-harassment program,

01:33:58 not a single one resulted in removal.

01:34:03 Reductions in greater pay or any discipline

01:34:07 more serious than a suspension.

01:34:10 Of those 92, just two resulted in suspensions and two

01:34:13 in letters of reprimand.

01:34:16 So one could argue that this encourages abuse.

01:34:19 This encourages harassment, which

01:34:21 is a very serious issue.

01:34:24 So the FDIC clearly needs a culture shift

01:34:28 to be an effective regulator.

01:34:30 This has implications for the important work

01:34:31 that we count on you to do.

01:34:34 Reporting following last year's regional banking crisis

01:34:37 detailed a brain drain from the FDIC.

01:34:40 And your agency even admits that its persistent staffing

01:34:43 shortages have harmed its ability to supervise banks.

01:34:46 It's not a nice place to work for a lot of folks.

01:34:50 And so you can't succeed if your employees experience

01:34:53 a toxic working environment.

01:34:55 So I will have more oversight questions for you

01:34:57 to answer in writing.

01:34:59 But as chair of the FDIC--

01:35:01 I'm sorry, the Financial Institutions and Consumer

01:35:03 Protection Subcommittee, which is oversight jurisdiction

01:35:06 over your agency, I want to ask about accountability

01:35:09 going forward.

01:35:10 This report offered multiple recommendations, all of which

01:35:13 you've accepted.

01:35:15 But I need a commitment from you to provide me

01:35:18 and my subcommittee a written progress report

01:35:21 and briefing on these recommendations

01:35:23 within the next 90 days.

01:35:25 We would be happy to do that, Senator.

01:35:27 Thank you so much.

01:35:29 I wish we had more time.

01:35:30 This is a critical issue.

01:35:33 But it's important that we all remain vigilant.

01:35:37 Thank you.

01:35:38 Thanks, Senator Warnock.

01:35:39 Senator Brett from Alabama is recognized.

01:35:41 Thank you, Mr. Chairman.

01:35:44 Let's get right to it.

01:35:46 As a woman, the findings of the FDIC report

01:35:50 are particularly disturbing.

01:35:54 Hundreds of instances of gender discrimination,

01:35:58 unsolicited sexual advances, harassment and assault,

01:36:03 and even difficulty being promoted after having children.

01:36:08 Let me repeat that individuals within a United States agency

01:36:14 denied opportunities for women because they

01:36:18 chose to have a family.

01:36:22 One employee recounted being told by her supervisor,

01:36:25 "You're a mother now.

01:36:27 You don't belong in the workplace."

01:36:30 That is completely and totally unacceptable.

01:36:35 In the 234-page report, I do want to point out a few things.

01:36:41 In 2013, OPM analysis said, "The culture the FDIC

01:36:47 permits discrimination and in-group favoritism

01:36:51 in relation to promotions and job assignments."

01:36:55 Mr. Gruenberg, who was the chair of the FDIC in 2013?

01:37:00 I was, Senator.

01:37:01 Yes, sir.

01:37:03 In 2015, a female employee was sent an explicit photo

01:37:08 by her supervisor.

01:37:09 She didn't report it after being warned, "You don't report.

01:37:14 You don't report."

01:37:15 You don't report.

01:37:17 You don't say anything because you end up getting fired."

01:37:23 Mr. Gruenberg, who was the chair of the FDIC in 2015?

01:37:26 I was, Senator.

01:37:28 In 2017, a report, "A subtle and not so subtle bias

01:37:32 against women in the FDIC, particularly women

01:37:34 who speak out or dare to ask a question."

01:37:38 This woman is going to dare to ask a question.

01:37:42 Mr. Gruenberg, who was the chair of the FDIC in 2017?

01:37:48 I was, Senator.

01:37:50 I could go on, but you get the point.

01:37:53 The FDIC was created to promote confidence

01:37:57 in the American financial sector.

01:38:01 Mr. Hsu, do you believe that an agency described

01:38:04 as misogynistic, abusive, toxic instills trust and confidence

01:38:11 in the American people?

01:38:15 All the recommendations.

01:38:16 Yes or no?

01:38:17 If it is described as that, and you

01:38:21 have said that you feel like this

01:38:22 was an unbiased, nonpolitical report, I have read your words.

01:38:26 So my question to you is, do you believe

01:38:28 an agency described as misogynistic, abusive,

01:38:32 or toxic instills trust or confidence

01:38:35 in the American people?

01:38:36 I believe the issues highlighted--

01:38:39 No, the question is--

01:38:41 Do you think that instills confidence?

01:38:42 If that's the way something's described, the answer is no.

01:38:45 Can you not say no?

01:38:47 Can you say no?

01:38:48 Can you do that?

01:38:49 Because--

01:38:49 We need to--

01:38:50 No, no, no.

01:38:50 I heard you earlier.

01:38:51 This is actually really disturbing.

01:38:53 I didn't expect to have to go back and forth with you on this.

01:38:56 It is an easy answer.

01:38:58 If an agency is described as those things,

01:39:01 the answer is it does not instill trust

01:39:03 in the American people.

01:39:04 It does not create a culture where

01:39:06 women feel like they want to work there, can work there,

01:39:10 can succeed, which means there is a competency

01:39:12 issue at the FDIC.

01:39:14 That means when you just heard Senator Warnock talk

01:39:16 about the brain drain, the brain drain

01:39:18 is because of the culture.

01:39:19 What woman would want to go work under these circumstances?

01:39:23 The answer is zero.

01:39:24 If we want to create a place where women can thrive,

01:39:28 where women in the workforce feel like they can balance

01:39:30 having a family and contributing to the greater good,

01:39:33 it is an honor to work at any of the places that you all work.

01:39:37 And the answer to the question is no.

01:39:39 So let's try this again, Vice Chair Barr.

01:39:42 Do you believe that the agency described

01:39:45 as misogynistic, abusive, or toxic

01:39:47 instills trust or confidence in the American public?

01:39:50 I think the problems in that report

01:39:52 are deeply troubling and unacceptable.

01:39:55 No.

01:39:55 Do you agree?

01:39:57 No.

01:39:57 I agree that the agency has deep problems

01:40:00 that they need to resolve.

01:40:01 Yes.

01:40:03 This is really frustrating.

01:40:07 Chair Gruenberg, you have been either the chair, the acting

01:40:14 chair, or vice chair, about 15 of the last 18 years,

01:40:24 or 18 years maybe, I guess those three things.

01:40:26 And then the three years you weren't,

01:40:28 one of those two things, you were a member of the board.

01:40:32 Yes, I am.

01:40:34 As FDIC chairman, your responsibility

01:40:38 is the day-to-day management of this organization.

01:40:41 As the vice chair, it's to advise the chairman.

01:40:43 As the board, it's to ensure the day-to-day operations

01:40:47 of a qualified management.

01:40:49 It is clear that we need wholesale change.

01:40:54 And I hope that these people will stop putting your career

01:40:58 above the very people that you all serve.

01:41:01 You said this is about people.

01:41:02 This is about employees.

01:41:04 In order to restore confidence, literally, it

01:41:07 starts at the top.

01:41:08 We need a change.

01:41:09 The American people deserve a change.

01:41:11 The FDIC was actually created to give them confidence

01:41:16 in the financial system.

01:41:17 And we need a wholesale change starting at the top.

01:41:20 Senator Warren of Massachusetts is recognized.

01:41:23 Thank you, Mr. Chairman.

01:41:24 Everyone deserves a workplace that

01:41:26 is free of discrimination and harassment.

01:41:29 Chairman Gruenberg, the Republicans

01:41:31 who have called today for your resignation

01:41:34 are engaged in a purely political exercise.

01:41:38 They want to replace you with Vice Chairman Travis

01:41:40 Hill, who was the right-hand man to your Republican predecessor,

01:41:45 who allowed the culture problems at the agency to fester.

01:41:50 Your resignation would do nothing

01:41:52 to improve the toxic culture at the FDIC,

01:41:56 but it would give Republicans a veto over bank policy.

01:42:01 Culture starts at the top, and it is your responsibility

01:42:05 to fix this.

01:42:06 So let me ask, do you commit to implementing

01:42:09 all of the recommendations from the action plan

01:42:13 and the independent review?

01:42:15 Yes, Senator.

01:42:17 We will be watching you to make sure that you

01:42:19 keep your word on this.

01:42:21 So let me turn to the purpose of this hearing.

01:42:23 2023 was the biggest year for bank collapses

01:42:27 in our nation's history.

01:42:29 In a span of two months, we saw the second, third, and fourth

01:42:32 largest bank failures ever.

01:42:35 Each of you has unfinished business

01:42:37 needed to strengthen our financial rules

01:42:39 and to prevent another crisis.

01:42:41 First, executive compensation.

01:42:44 The CEOs of the banks that failed

01:42:46 walked away with millions of dollars

01:42:49 each after they ran their banks into the ground.

01:42:52 The FDIC, under Chair Gruenberg's leadership,

01:42:55 and the OCC, under acting Comptroller Hsu,

01:42:59 have finally revived a Dodd-Frank rule that

01:43:03 would reform CEO pay packages so they do not incentivize

01:43:08 excessive risk taking.

01:43:10 But the Fed has not joined them yet.

01:43:12 Vice Chair Barr, will the Fed follow the law

01:43:16 and join the FDIC and the OCC's proposed rulemaking

01:43:21 on incentive-based compensation?

01:43:24 We're committed to following the law,

01:43:26 to having an implementing rule under Section 956.

01:43:30 We have further work to do.

01:43:32 Let's get it done.

01:43:33 Your statutory deadline passed 13 years ago.

01:43:37 So I hope you do not allow Chair Powell to stop you

01:43:40 from following the law.

01:43:42 Second, let's take a look at mergers.

01:43:44 Your agencies have allowed the industry

01:43:46 to create more too-big-to-fail banks than ever.

01:43:50 Acting Comptroller Hsu, the OCC's new proposal on mergers,

01:43:55 said nothing about how the OCC will evaluate a merger's

01:43:59 impact on competition, which kind of misses the point.

01:44:04 Will you strengthen your proposal

01:44:06 so that it actually addresses competition the way

01:44:09 the FDIC's proposal does?

01:44:13 We're working with both the FDIC, the Fed, and the DOJ

01:44:16 on exactly that.

01:44:17 And we will continue to work on that.

01:44:19 We're committed to that.

01:44:20 Good.

01:44:20 You have a job to do.

01:44:22 I think it's really important that we get this done.

01:44:24 Vice Chair Barr, the Fed hasn't put out any update on mergers.

01:44:29 When can we expect the Fed to follow through

01:44:31 on the president's executive order

01:44:33 to strengthen bank merger guidelines?

01:44:37 Senator, we're working with the FDIC and the OCC

01:44:40 and the Department of Justice on that matter.

01:44:42 I don't anticipate us putting out

01:44:44 a separate proposal on this.

01:44:46 We're working with the other agencies.

01:44:48 OK.

01:44:48 Tick-tock.

01:44:49 We've got to get this done.

01:44:51 Finally, bank capital.

01:44:52 These giant banks threaten our entire economy

01:44:56 when they collapse.

01:44:57 But strong capital requirements allow

01:45:01 them to better absorb shocks without needing a bailout

01:45:05 from the taxpayers.

01:45:07 The Fed released a proposal to strengthen capital requirements

01:45:10 on the 37 biggest banks.

01:45:13 But the bank lobby has launched an unprecedented campaign

01:45:18 to weaken it.

01:45:20 Vice Chair Barr, are you still committed to finalizing

01:45:23 a strong rule this fall?

01:45:26 I am committed to doing that.

01:45:28 Good.

01:45:28 Chair Gruenberg, are you committed?

01:45:31 Yes, Senator.

01:45:32 And are you committed, acting Comptroller Hsu?

01:45:36 Yes.

01:45:37 Good.

01:45:37 I'm going to hold each of you accountable for finishing

01:45:42 your unfinished business.

01:45:44 The American people need you to get this done.

01:45:46 Thank you.

01:45:47 Thank you, Mr. Chairman.

01:45:48 Senator Daines is recognized for Montana.

01:45:51 Chairman, thank you.

01:45:53 On day one of his administration,

01:45:58 President Biden said, and I quote,

01:46:01 "If you're ever working with me and I

01:46:04 hear you treat another colleague with disrespect,

01:46:08 talk down to someone, I promise you

01:46:12 I will fire you on the spot."

01:46:16 No if or buts, end quote.

01:46:21 It's interesting, given the findings

01:46:23 of a recent investigation into the workplace

01:46:25 culture at the FDIC, that Chair Gruenberg,

01:46:30 I find you're still sitting here, still with a job

01:46:33 before this committee.

01:46:35 How do you reconcile what President Biden said

01:46:39 with what's been going on at the FDIC

01:46:41 and the fact you still hold your job?

01:46:43 Thank you.

01:46:46 As I've indicated, I accept all the findings

01:46:50 of the report, the recent report,

01:46:52 including in regard to my conduct.

01:46:55 I've committed to addressing the issue personally,

01:47:01 as well as to having our workforce

01:47:04 on a confidential basis regularly give me feedback,

01:47:10 as well as engaging a executive coach

01:47:16 and any necessary counseling.

01:47:18 I'm prepared to take responsibility on my part

01:47:21 for the findings of the report.

01:47:22 So how do you resolve your boss here saying,

01:47:27 I promise I'll fire you on the spot?

01:47:31 You start, first of all, with who's been fired so far

01:47:33 at the FDIC?

01:47:35 I can tell you, Senator, that this year there

01:47:37 have been four employees separated from the agency

01:47:41 for misconduct.

01:47:43 We have had changes of senior management

01:47:48 responsible in this area.

01:47:50 Just make sure I know what separated means.

01:47:52 Define that.

01:47:52 It means they've either received termination notices

01:47:55 from the agency or before the disciplinary action takes

01:47:59 effect, they've resigned or retired,

01:48:02 which they're allowed to do under the law.

01:48:04 How many have been terminated?

01:48:07 I would want to get back to you, but several of them,

01:48:10 but not all of them.

01:48:12 I mean, all of them were either received termination notices

01:48:16 or other disciplinary action before that action took place.

01:48:20 At least not some of them voluntarily left the agency.

01:48:24 What I find revealing is that some of the same Senate

01:48:27 Democrats who have sought to stake

01:48:30 their political identities on fighting

01:48:32 against sexual harassment and discrimination

01:48:35 are sitting here today.

01:48:36 And frankly, turning a blind eye to the very same abuses

01:48:40 that are happening under your leadership at the FDIC.

01:48:45 And I think it's another example on full display

01:48:47 for the American people of the Biden administration and Senate

01:48:51 Democrats talking out of both sides of their mouth.

01:48:55 If President Biden was serious about the pledge

01:48:57 that he made on day one, he would have already

01:49:01 called for a change in leadership at the FDIC.

01:49:05 However, it's clear that the president and his party

01:49:08 would rather ignore these damning findings out

01:49:12 of political expediency.

01:49:15 Because without you, Chair Grunberg,

01:49:20 they lose a key figure in their rush

01:49:23 to radically expand the regulatory state

01:49:25 for little purpose other than to target politically

01:49:29 disfavored entities.

01:49:33 Chair Grunberg, as I alluded in my opening remarks,

01:49:36 an independent report investigating workplace

01:49:39 culture at the FDIC found the agency

01:49:41 you have led longer than any other FDIC director in history

01:49:47 has been plagued, plagued with sexual harassment, assault,

01:49:52 bullying, discrimination, brazen misconduct.

01:49:59 Additionally, according to interviews with FDIC employees,

01:50:03 you were described as someone who

01:50:05 is incapable of controlling their temper.

01:50:08 And subordinates regularly describe interactions with you,

01:50:12 and I quote, "as being extremely difficult and volatile."

01:50:18 The findings make clear that serious and systemic reforms

01:50:22 are desperately needed at the FDIC.

01:50:28 Given your long tenure leading the agency

01:50:31 and your clear inability or unwillingness

01:50:33 to address these issues, how is it

01:50:37 you can sit here and make the case

01:50:38 you have the moral authority to continue leading the agency?

01:50:42 If we were consistent, if the president were consistent

01:50:44 with what he said about firing people on the spot,

01:50:48 this issue would have been addressed a long time ago.

01:50:52 But how do you have the moral authority

01:50:53 to continue leading the agency with the incredible list

01:50:58 of behaviors and allegations, brazen?

01:51:02 Senator, we have been engaged since the news stories came out

01:51:07 last year in an all-agency effort,

01:51:11 engaging employees across the agency

01:51:14 in addressing these deeply, deeply troubling issues.

01:51:19 We have a comprehensive action plan

01:51:21 we're in the process of implementing.

01:51:23 We've accepted all the findings of the new report

01:51:27 and committed to implementing all of the recommendations.

01:51:31 We've already started that process.

01:51:33 We have engaged, as I've indicated,

01:51:37 a broad participation in the agency.

01:51:40 We are committed to following through,

01:51:42 and I think I can provide the leadership to do that.

01:51:44 Has the president asked you to resign?

01:51:47 Yes, but one last question.

01:51:49 Has the president asked you to resign?

01:51:50 Senator Van Hollen, you're recognized for five minutes.

01:51:53 Thank you, Mr. Chairman.

01:51:54 Welcome, everybody.

01:51:55 And Mr. Gruenberg, let me start with you.

01:51:59 And I associate myself with all the deep concerns expressed

01:52:05 in the findings of the report, including those

01:52:07 expressed by Senator Warnock.

01:52:09 I have been listening to your testimony over C-SPAN

01:52:14 before I got here.

01:52:16 And I think each of us who ask you this question

01:52:21 are repeating the question because we

01:52:22 want your personal commitment to following through right away

01:52:30 in implementing all of the recommendations.

01:52:33 And I just want to say, I think we

01:52:35 are going to be watching like a hawk

01:52:37 to make sure that this happens.

01:52:40 So do I have your personal commitment

01:52:44 that you will immediately implement these reforms so

01:52:49 that we can change the culture at the FDIC?

01:52:52 Yes, Senator.

01:52:55 I think you hear loudly and clearly

01:52:58 that that is going to be an absolute requirement going

01:53:02 forward.

01:53:04 Vice Chair Barr, I just want to pick up on a couple of questions

01:53:07 that some of my colleagues have asked.

01:53:10 And I want to start with the issue of implementation

01:53:14 of Dodd-Frank section 956.

01:53:16 As you know, this was required under the bill that

01:53:20 passed over a decade ago now.

01:53:24 I'm glad to see the NCUA signal their intent

01:53:27 to propose this rule.

01:53:28 I know the SEC has indicated they're moving forward.

01:53:32 I've not seen any notice of proposed rule from the Fed.

01:53:39 Can we get your commitment today that the Fed will quickly

01:53:43 begin the process of implementing this law

01:53:46 by issuing a notice to proposed rule in short order?

01:53:52 Senator, in discussions with my colleagues,

01:53:56 it became apparent that at the board,

01:53:59 we believe we need to conduct some further analysis

01:54:02 before deciding what steps to take.

01:54:05 We are committed to following the law

01:54:07 to implementing section 956.

01:54:09 But we have further work to do.

01:54:12 Well, I know you haven't been at the Fed

01:54:14 for the duration of this period.

01:54:16 But it has been close to two decades.

01:54:22 And you agree that this is a requirement of the law,

01:54:25 correct?

01:54:26 Yes, Senator, I agree it is required by the law.

01:54:28 And we are committed to following the law.

01:54:30 And isn't 20 years way too long to be making

01:54:34 good on a legal requirement?

01:54:37 Yes, in this case, the exact time period

01:54:39 is shorter than that, but it is still a very, very long time.

01:54:42 Yeah, as a matter of years here.

01:54:44 I just want to be clear, this is a case

01:54:48 where noncompliance with the requirement is a real problem.

01:54:55 And a lot of us have lost patience.

01:54:57 So I hope you'll communicate that back

01:55:00 to folks on the board and your colleagues.

01:55:03 I will, Senator.

01:55:04 On the issue-- and I think Senator Smith raised

01:55:08 the issue of the CRA and the fact

01:55:10 that we've seen a lawsuit filed, a lot of forum

01:55:16 shopping going on these days.

01:55:18 But could each of you just take a moment

01:55:21 to describe the due diligence you each went through

01:55:26 in coming up with the rule?

01:55:27 Obviously, this rule was way outdated.

01:55:31 A lot of changes have occurred in the banking system.

01:55:35 And it's also my understanding that you

01:55:37 looked at the comments from all the stakeholders

01:55:40 before issuing the rule.

01:55:41 So if you could just emphasize what process you went through

01:55:47 and why you think this upgrade was necessary,

01:55:51 starting with you, Mr. Barr.

01:55:52 Thank you, Senator.

01:55:53 The Community Reinvestment Act has

01:55:55 been absolutely critical for helping low and moderate income

01:55:59 communities all across the United States.

01:56:02 And the rule that we finalized really took into account

01:56:06 comments from communities all over the country,

01:56:08 from bankers of all sizes, from community organizations

01:56:11 and civil rights groups.

01:56:13 Staff worked for several years overall on this process

01:56:17 really to get that input in advance

01:56:19 and to take it during the comment process.

01:56:22 And I think the final rule is really a win for everybody.

01:56:25 It really will help bring communities along

01:56:29 in ways that have been really just essential

01:56:33 for the future of our country.

01:56:34 So I think the staff and the agencies

01:56:37 did really extraordinary work to make sure

01:56:39 that it was a lawful rule and an impactful rule.

01:56:43 Thank you.

01:56:43 Just very briefly from the other--

01:56:45 Yes, Senator.

01:56:46 After 25 years, it was--

01:56:52 and all the changes in the banking industry

01:56:55 over that period, it was absolutely essential

01:56:59 to modernize and strengthen the Community Reinvestment

01:57:02 Act to make it relevant to the changing nature of the banking

01:57:06 market today.

01:57:07 Failure to do that would make Sierra increasingly irrelevant

01:57:11 to expanding access to credit, investment,

01:57:15 and basic financial services to low and moderate income

01:57:18 communities and communities of color across the United States.

01:57:22 And the process that went into developing that rule

01:57:26 was extraordinary.

01:57:28 We went through an advance notice of proposed rulemaking

01:57:31 that was developed by the Fed that took public comment

01:57:36 and then went through a notice of proposed rulemaking

01:57:39 when we again took broad comment.

01:57:42 There was an extraordinary review done.

01:57:44 Every comment received careful consideration

01:57:48 in the final rulemaking.

01:57:50 And it is a sound, balanced, and strong rule

01:57:54 that will really make a difference

01:57:57 in low and moderate income communities across the country.

01:57:59 Thank you.

01:58:00 Mr. Sear.

01:58:01 The only thing I would add is that the efforts of staff

01:58:04 on this particular rulemaking were extraordinary.

01:58:07 I've seen a lot of different efforts.

01:58:08 And I think it's fair to say that a lot of thought

01:58:11 and deliberation went into that across all the efforts

01:58:14 that both Vice Chair Barton and Chairman Greenberg mentioned.

01:58:16 Thank you.

01:58:17 Thank you, Mr. Chairman.

01:58:18 Thanks, Chairman Howell.

01:58:19 Thank you to your witnesses for joining us today.

01:58:21 I look forward to working with you

01:58:22 to strengthen our financial system.

01:58:23 For senators who wish to submit questions for the hearing

01:58:27 record, those questions are due one week from today, Thursday,

01:58:29 the 23rd of May.

01:58:31 To the agencies, please submit responses

01:58:34 to questions for the record within 45 days

01:58:36 from the day you receive them.

01:58:38 Thank you again for your testimony.

01:58:40 Committee is adjourned.

01:58:42 [AUDIO OUT]

01:58:45 [BLANK_AUDIO]

Sherrod Brown Chairs Senate Banking Committee Hearing On Oversight Of Financial Regulators

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