FDIC directors have called on the banking agency chief to recuse himself from the investigation

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Republican directors of the Federal Deposit Insurance Corp. have called on the agency’s chair to recuse himself from an investigation into allegations of widespread sexual harassment and discrimination at the U.S. banking regulator.

FDIC Chairman Martin Grunberg this week hired the law firm BakerHostetler to conduct an independent “top-to-bottom” assessment of its workplace, following allegations that employees there have been subjected to years of harassment and misogyny.

FDIC Vice Chairman Travis Hill and Director Jonathan McKernan said Thursday the investigation should be handled by the agency’s board, not management.

“All parts of the organization, including the president and general counsel, must be reviewed for all conduct described in recent news reports, and they must fully recuse themselves. [themselves] from the process,” Hill and McKernan wrote in a joint report.

An FDIC spokeswoman did not immediately respond to Grunberg’s request for comment.

The pressure from two Republicans on the five-person panel marks the latest fallout from reports published this week by The Wall Street Journal questioning a chronic “toxic environment” for women in the FDIC’s workplace and Grunberg’s management.

Senator Sherrod Brown, a Democrat from Ohio, called for the FDIC’s inspector general to conduct an independent investigation into the agency’s workplace culture.

A senior FDIC official said the agency’s panel had not yet met in the wake of the allegations, and board members had not been consulted on hiring an outside law firm to conduct the review.

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The FDIC’s board had scheduled a meeting Thursday, where Republican board members planned to voice their concerns about how Grunberg and the agency’s management are handling the review. But the meeting was canceled just before it started.

“The board needs to have more information about the investigation than it does now,” McKernan told the Financial Times on Thursday.

TD Cowen analyst Jaret Seiberg warned that Gruenberg’s resignation from the FDIC risks stalling pending policy changes, including the implementation of Basel III banking standards in the US. The requirements, which force banks to increase their capital reserves, have been opposed by many in the industry.

“This is because the FDIC board is split three to two, with Democrats in the majority. Losing Democratic votes would split an agency in two. This is important because a majority vote is needed to finalize a rule,” Seeberg, who is managing director at TD Cowen’s Washington Research Group, wrote in a note to clients on Thursday.

Hill, who voted against the Basel III programs, will become FDIC chairman if Grunberg steps down.

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