White House could decide on FDIC chair as soon as next week, source says

By Douglas Gillison, Andrea Shalal and Chris Prentice

(Reuters) -The White House could decide on a nominee to replace the chair of the U.S. Federal Deposit Insurance Corporation (FDIC) as early as next week, two people with knowledge of the matter said on Friday as further evidence of agency lapses emerged.

FDIC Chair Martin Gruenberg this week said he would step down once a successor is confirmed by the Senate, succumbing to pressure from lawmakers who said the agency needed fresh leadership after an independent investigation found widespread sexual harassment and other misconduct at the agency.

On Friday, the FDIC's internal watchdog also said it was not promptly informed of misconduct allegations involving senior FDIC officials, in a development that could fuel Republican calls for Democratic President Joe Biden to fire Gruenberg.

The White House is under pressure to quickly fill the role and preserve Biden's financial regulation agenda, including major bank capital hikes, just six months ahead of the U.S. presidential election.

The FDIC insures bank deposits and helps safeguard the stability of the banking system.

A decision on a nominee is expected within weeks and could come as early as next week, a senior administration official said on Friday. The White House has already been in touch with Senator Sherrod Brown, who chairs the Senate Banking Committee which oversees the FDIC, about scheduling a swift confirmation hearing, another White House official said.

Brown's office did not respond to a request for comment.

Treasury Secretary Janet Yellen told Reuters on Friday she believed Gruenberg's successor needed to be free of any prior association with the FDIC's workplace culture and to take decisive steps to change the system.

"It needs somebody who's committed to cleaning up the problem," she said. "It needs somebody who can come in from the outside, is credible in terms of their own past actions and stance with regard to issues of this type."

The White House is seeking someone outside the agency, Reuters reported on Tuesday, and a candidate with the strong managerial credentials needed to fix the agency's cultural problems, an administration official said on Thursday.

Kristin Johnson, a Democratic member of the Commodity Futures Trading Commission (CFTC), is one of the candidates, according two people with knowledge of the matter. Bloomberg first reported the news on Thursday.

One of the sources also said an announcement could come next week.

The CFTC's other Democrat, Christy Goldsmith Romero, Nellie Liang, a top Treasury official, Adrienne Harris, superintendent of New York's Department of Financial Services, and Sandra Thompson, director of the Federal Housing Finance Agency, are also favored among Democrats, according to several other sources.

Representatives for the five declined or have not responded to requests for comment.

Inspector General Jennifer Fain said in a memo addressed to Gruenberg that was dated Thursday and published Friday that the watchdog had "learned of several allegations of misconduct regarding senior FDIC officials that were not reported ... in a timely manner."

Her office is reviewing the allegations and investigating whether anything else had not been reported, the memo said.

In response to a request for comment, the FDIC shared a message it had sent to the OIG's office this week in which it said the agency looked forward "to coordinating and developing a process for notifying the OIG promptly" of alleged misconduct by senior FDIC officials.

While the independent review did not find Gruenberg directly responsible for the agency's broad cultural issues, he apologized for misconduct under his leadership and for his own transgressions.

The Republican-led House Financial Services Committee on Thursday announced it had asked Gruenberg and other top officials to testify on June 12 about the independent review's findings.

Should Gruenberg step down before a replacement can be appointed, the FDIC's board of directors would fall into a 2-2 partisan deadlock, hamstringing the Biden administration's bank regulation agenda.

(Additional reporting by David Lawder in Stresa, Italy; Editing by Michelle Price, Franklin Paul, Matthew Lewis, Chizu Nomiyama and Rod Nickel)