The Federal Deposit Insurance Corporation plays two complementary roles. First, it insures deposits of up to $250,000 per bank, pays back depositors when banks fail, and restructures failed banks. But it has an even more important role as one of three key agencies, along with the Federal Reserve and the Comptroller of the Currency, that set bank regulatory policy in general.

The FDIC, whose insurance funds are at risk when a bank fails, is typically the toughest of these agencies. The current FDIC chair, Martin Gruenberg, a former staffer to Sen. Paul Sarbanes, has been a knowledgeable, incorruptible, and public-minded regulator. But now Gruenberg’s job is on the line.

If you think of what the FDIC actually does, much of it involves field trips to examine banks. Examiners, almost two-thirds male, go on the road, stay in hotels, and many are in the habit of crudely looking for sex from their female colleagues.

In July 2020, the FDIC’s Office of Inspector General released a report on sexual harassment at the agency. The report called for systematic reforms. This week, a more extensive report by an outside law firm, Cleary Gottlieb Steen & Hamilton, which interviewed more than 500 current and former FDIC employees, added disgusting details.

One employee reported that a supervisor texted her photos of his penis. Another was stalked by a colleague who regularly texted her photos of sex acts.

A hotel financed by the FDIC, where new examiners stay during their training to become a Financial Institution Specialist (FIS), became so notorious for drunken parties that one trainee wrote, "If you haven’t puked off the roof, were you ever really a FIS?"

Few women complained because they had no expectation that management would take the complaints seriously. The report quotes one FDIC executive that the usual practice in response to complaints is to "pay, promote or move" offenders. Of 92 sexual harassment complaints that made it to a formal review process between 2015 and 2023, "not a single one resulted in removal, reductions in grade or pay, or any discipline more serious than a suspension." Just two resulted in temporary suspensions.

Gruenberg is not accused of sexual misbehavior himself, but of failing to take seriously the need for drastic reform. And here the plot thickens.

The Republican chair, Jelena McWilliams, who served from 2018 to 2022, had more than three years to reform the frat-boy behavior flagged in the IG report. On paper, she accepted the IG’s recommendations, but nothing changed. Her policy director, Travis Hill, now the FDIC’s vice chair, did nothing either.

In 2023, Gruenberg returned to the chairmanship that he held from 2011 to 2018 under President Obama. Last November, The Wall Street Journal published an extensive exposé titled "Strip Clubs, Lewd Photos and a Boozy Hotel: The Toxic Atmosphere at Bank Regulator FDIC," with lurid details.

Republicans on the board then called for a fresh review of the harassment issue and successfully demanded that Gruenberg recuse himself from the process. They then hired Cleary Gottlieb.

Hill, of course, was self-interested, since if Gruenberg is forced out, he becomes acting chair for the rest of this year, a time when several key banking regulations are in play. Cleary Gottlieb also has extensive conflicts of interest, since it has a large practice of banking clients, who would love to see a Republican-led FDIC block pending regulations. Hill is already on record against tougher bank capital standards.

In selecting a bank-friendly power-law firm, the Republicans must have hoped that Cleary Gottlieb would explicitly call for Gruenberg’s resignation. But though the report faulted Gruenberg’s inaction and noted his reputation for having a temper, it stopped short of recommending his ouster.

Gruenberg will testify next week before both the House Financial Services Committee, chaired by Republican Patrick McHenry of North Carolina, and the Senate Banking Committee, chaired by Sen. Sherrod Brown (D-OH). It won’t be pleasant.

For now, he has the support of key Democrats in Congress as well as the Biden White House. Both Sen. Brown and the ranking Democrat on House Financial Services, Rep. Maxine Waters (D-CA), have been critical but have not called for Gruenberg to step down.

Here’s the political dilemma for Democrats: They can’t and shouldn’t condone sexual harassment. But if Gruenberg is pressured into resigning, Hill becomes acting chair for the rest of Biden’s term, the FDIC board is deadlocked 2-2, and the FDIC goes from being the strongest of the bank regulators to the weakest.

Besides the capital standards rule, several other regulatory issues are in play, including better merger rules to prevent further concentration, and executive compensation rules to discourage excessive risk-taking motivated by executive greed for higher pay. These would be dead.

The effort to force Gruenberg out is a partisan hit job. But the sexual harassment pattern at the FDIC is all too real; and despite the 2020 IG report, it continued to fester on Gruenberg’s watch. As noted, Gruenberg was also FDIC chair from 2011 to 2018, a time covered by the allegations, and the situation was not dealt with then either. (His FDIC board service dates all the way back to 2005; he was even briefly acting chair under George W. Bush before Sheila Bair was confirmed.)

It’s not as if Republicans, the party of serial sexual predator Donald Trump, have ever made an issue of sexual harassment at other agencies. But Democrats, to their credit, are serious about the sexual harassment issue, and it doesn’t work to excuse Gruenberg’s leadership lapse just because his Republican predecessor failed to act either.

After the latest report came out, Gruenberg sent FDIC employees a letter of abject apology. "To anyone who experienced sexual harassment or other misconduct at the F.D.I.C., I again want to express how very sorry I am. I also want to apologize for any shortcomings on my part. As chairman, I am ultimately responsible for everything that happens at our agency, including our workplace culture," he wrote, adding, "We will spare no effort to create a workplace where every employee feels safe, valued and respected."

His critics say he’s a little late. His defenders say that the Republicans on the FDIC are opportunists and hypocrites. We’ll soon find out whether key Democrats are willing to give Gruenberg time to carry out his pledge.