Banks Face Old Foe as Senate Weighs Biden’s Pick to Run FDIC

(Bloomberg) -- As the top watchdog for the US government’s bank bailout program after the 2008 financial crisis, Christy Goldsmith Romero took a tough stance against bankers who committed fraud or abused public funds.

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By the end of her decade-plus tenure at the Office of the Special Inspector General for the Troubled Asset Relief Program, the agency’s investigations had helped put more than 70 bankers in prison — a tally it highlighted in reports to Congress.

As the Biden administration’s pick to lead the Federal Deposit Insurance Corp., Goldsmith Romero would face a different kind of cleanup. Allegations of sexual harassment, discrimination and a toxic workplace rocked the agency after an investigation by the Wall Street Journal and a subsequent report by an outside law firm. Chair Martin Gruenberg announced in May that he would step down once the Senate confirmed a successor.

A hearing on the nomination of Goldsmith Romero, now a commissioner on the Commodity Futures Trading Commission, was held on Thursday. But confirmation isn’t a sure thing. Republican wariness, limited time left in the congressional session and the outcome of the November presidential election could weigh against her. If she makes it, she will likely bring her Sigtarp touch to the FDIC.

Banks once relieved by the pending exit of Gruenberg would likely find a similarly formidable regulator in Goldsmith Romero. As for FDIC employees, they would find CGR, as she’s often known, to be an intense yet fair and generally supportive manager, according to people who have worked with her and asked not to be identified. Her background also suggests she would act quickly to address the agency’s culture.

“One thing you can take to the bank is Christy Goldsmith Romero will hold people accountable,” said Dennis Kelleher, president and chief executive officer of Better Markets, a financial public policy group. “People who engage in misconduct will be swiftly and severely punished.”

During her testimony, Goldsmith Romero said she would “prioritize a complete overhaul of the FDIC’s workplace culture,” including conducting investigations into the allegations of the report and removing problematic staff. She also said “the era of each office being a fiefdom would be over,” referring to different FDIC offices operating with different workplace policies and practices.

Many Republicans on the Senate Banking Committee view her with some skepticism because she forged a policy path at the CFTC that they consider to be too far to the left, according to a person familiar with the committee members’ thinking. They are concerned that she might try to do the same at the FDIC, the person said.

Goldsmith Romero declined to comment.

Beat Cop

Goldsmith Romero carried her cop-on-the-beat approach to the CFTC. She helped spearhead policies to place additional penalties on big banks and others that were found to be repeat offenders, and to seek individual admissions of guilt.

If she is confirmed, her focus on accountability for executives and boards of directors would likely carry over to the FDIC, said Peter Dugas, executive director at Capco, a financial-services consulting firm.

Her time at the CFTC also gave her a chance to engage on some key policy issues, including digital assets, artificial intelligence and cybersecurity, that will carry over to the FDIC’s policy work.

She has called out conflicts of interests at digital-asset companies and hasn’t held back from criticizing fellow Democrats when the commission advanced measures she believed would erode investor or market protections. At the same time, she isn’t reflexively opposed to new technologies.

“Having that lens going into the job of the FDIC is going to be equally important because of the speed of change in banking and financial services, generally,” Dugas said.

Republican Criticism

The Senate confirmation process can stretch for months. If she’s approved, Goldsmith Romero will have to navigate a raft of policies fiercely opposed by banks.

At the top of the industry’s hit list is the Biden administration’s signature bank-capital overhaul. Although the CFTC isn’t directly involved in the proposal, Goldsmith Romero and other commissioners have monitored it because of its potential impact on derivatives markets.

During the hearing, Goldsmith Romero said she was open to a reproposal of those rules, known as the Basel III endgame. “A reproposal is always on the table when a rule is reproposed and you get that many negative comments,” she said. “I’m not looking to get something done fast, I’m looking to get something done right.”

Senator Tim Scott of South Carolina, the committee’s top Republican, said in opening remarks that Goldsmith Romero’s background “lacks the bank regulatory experience necessary to carry out the critical responsibilities of the FDIC.” That remark echoed other Republican lawmakers’ critique of her experience. But many of those interviewed said she knows enough to hit the ground running.

Learning Curve

“She’s got a good base of knowledge on the supervisory side already,” where there have been “serious shortcomings,” said former FDIC Chair Sheila Bair, a Republican appointee.

Goldsmith Romero will face a learning curve on the FDIC’s work with deposit insurance and bank resolution plans, Bair said. But there’s some overlap. For example, the commissioner voted last year to support a CFTC proposal requiring orderly wind-down plans from derivatives clearing organizations, whose clients include banks.

Virginia Senator Mark Warner, a Democrat, voiced strong support of Goldsmith Romero, while complimenting her for being open to a reproposal of the landmark capital plan after careful study of the specific changes.

Leading a transformation of the workforce culture at an agency with more than 5,000 employees will be a heavy lift.

Harassment Claims

A report by Cleary Gottlieb Steen & Hamilton released on May 7 found that FDIC staff had suffered through years of a “boys’ club” culture that abetted allegations of “sexual harassment, discrimination and other interpersonal misconduct” and stymied whistleblowers.

Goldsmith Romero wouldn’t tolerate that, according to former colleagues and allies.

“In my experience, when she heard real concerning matters involving personnel, she would address them,” said Vince Micone, one of her deputies at Sigtarp and now a deputy assistant secretary at the Labor Department. “She wouldn’t let things fester.”

Diversity Focus

Goldsmith Romero, the daughter of a US Navy sailor who immigrated from the Philippines and settled in Virginia Beach, has highlighted her focus on diversity within government. In an October speech, she said almost half of Sigtarp’s employees identified themselves as a racial or ethnic minority during her leadership.

The commissioner has three adult daughters. Her wife, Adrianne, previously worked as a Federal Bureau of Investigation speechwriter.

Goldsmith Romero served as counsel to two chairs of the Securities and Exchange Commission as the agency navigated the financial crisis. In 2009, she joined Sigtarp as chief of staff, rising in the ranks before officially taking charge in 2012.

During her time there, the agency’s work led to the convictions of about 370 people. It sent dozens of bankers from small and midsize banks to prison.

Goldsmith Romero worked to create a respectful workplace, Micone said. She was also a “tough boss,” he said. “She expected results; there was no question about that.”

(Updates with nominees’ remarks and lawmaker comments starting in the seventh paragraph.)

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