(Bloomberg) -- Martin Gruenberg will step down as head of the Federal Deposit Insurance Corp. after findings of a toxic work environment put the regulator at the center of a heated political fight and fueled calls for his removal. 

Gruenberg, 71, faced mounting pressure following a scathing report that detailed allegations of harassment and discrimination at the bank regulator during his tenure. Those findings earlier this month by law firm Cleary Gottlieb Steen & Hamilton were based on accounts from more than 500 people and a months-long probe into a Wall Street Journal article about female bank examiners facing a “sexualized, boys’ club environment.” 

“In light of recent events, I am prepared to step down from my responsibilities once a successor is confirmed,” Gruenberg said in a statement. 

The White House said it will move quickly to nominate a successor and thanked Gruenberg for staying on until a replacement is confirmed. Such a move would ensure the FDIC board maintains a majority of Democratic appointees, and can keep the administration’s regulatory agenda on track at least through the election.

After surviving two bruising days of congressional hearings last week, the political pressure on Gruenberg surged Monday when a key Democrat called on President Joe Biden to replace him. Breaking with other top Democratic lawmakers, Senate Banking Committee Chairman Sherrod Brown said that new FDIC leadership was needed to ensure “fundamental changes.”

Since the law firm’s report was released on May 7, Gruenberg had vowed to fix the agency’s problems and apologized repeatedly to employees. Last week, he told lawmakers, including Brown, that he was the correct person to lead a cultural overhaul at the agency. 

The probe, which cited allegations over decades and under multiple agency leaders, didn’t find that Gruenberg himself had engaged in harassment or discrimination, but cited examples of the FDIC chief losing his temper with staff and questioned whether he was the best person to drive change. 

Regulatory Agenda

After the announcement, House Majority Whip Thomas Emmer, a Minnesota Republican, said on Bloomberg Television that Gruenberg should step down immediately. “I’m sure there are other capable people, by the way, that are there who can pick up the pieces and continue to run the FDIC in a much better fashion than Mr. Gruenberg did,” Emmer said.

Beyond the FDIC, Gruenberg’s eventual exit could have significant ramifications for the Biden administration’s regulatory agenda and the financial industry. 

If Gruenberg were to ever leave without a replacement being confirmed, the FDIC would be split evenly 2-2 between Democrats and Republicans. In that instance, Travis Hill, the FDIC vice chairman, a Republican who has criticized some of the regulatory proposals championed by Gruenberg, would lead the regulator temporarily. 

The FDIC, the Federal Reserve and Office of the Comptroller of the Currency are working on a plan that would force big banks to hold significantly more capital to buffer against losses. Wall Street firms have vigorously lobbied against the plan and Republicans at the regulators have been more receptive to industry’s arguments.

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It’s unclear how quickly the White House can nominate and win Senate approval of a permanent chair, but delays in confirming presidential nominees are common during election years. 

Intense Pressure

Sam Michel, deputy press secretary at the White House said in a statement that Biden would “soon put forward a new nominee for FDIC chair who is committed to those values and to protecting consumers and ensuring the stability of our financial system, and we expect the Senate to confirm the nominee quickly.”

Gruenberg has been serving in his second stint as chairman and has been an FDIC board member since 2005. In addition to twice serving as FDIC chairman, he has led the agency in an acting capacity. Before joining the regulator, Gruenberg, who was trained as a lawyer, worked for almost two decades as a Senate staffer.

Some of the allegations of misconduct in the law firm’s report were fairly recent. Others go back decades — as early as the 1980s — under more than one chair. Some Democrats had argued that former leaders of the agency, including Republican-appointed chair, should shoulder some of the blame and that Gruenberg could fix the agency’s problems.

However, by Monday the political pressure had grown too intense. In a sign of things to come, Sheila Bair, who led the FDIC during the financial crisis and remains influential in banking policy circles, said in a post on X that Gruenberg should signal he’ll step down. 

“This controversy is hurting him and the agency,” she said. 

--With assistance from Jordan Fabian, Jennifer Jacobs, Kailey Leinz and Joe Mathieu.

(Updates with White House comment in fourth and 13th paragraphs.)

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