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Progress toward Overdue Accountability

Director Jonathan McKernan
 Statement, Board Meeting  
November 12, 2024

Today, at a Board meeting that was again closed to the public over my objections, the Board finally reached consensus on how to investigate allegations of misconduct by FDIC executives.1 This belated consensus follows five months of debate, delays, and false starts.

Under the approach adopted today, the newly established Office of Professional Conduct (OPC) will retain and oversee law firms that will investigate allegations of executive misconduct.2 Hopefully, we can expect completed investigations in the spring, with disciplinary decisions not long after that.

The problem of course is that will be too little too late. Thanks to months of debate, delays, and false starts at the Board level, accountability for wrongdoing will be delayed until a year after the Cleary report and likely after some of these executives have left the FDIC. There can be no doubt that, despite my and Vice Chairman Hill’s persistent efforts, FDIC leadership has failed to deliver prompt accountability.

Some might ask what happened to the Board majority’s 3-2 decision in August to outsource these investigations to a to-be-determined government agency. That approach proved unworkable. Even at the time of its adoption, the Board majority knew there were very significant obstacles to its success.3 The decision to pursue this half-baked approach was, at a minimum, a serious error of judgment.

On a more positive note, we have hopefully put an end to months of dithering and dilly-dallying on accountability.4 All that was totally unnecessary. But all that was also totally inevitable. 

This has been a Board haunted by the legacies of the past and the associated conflicts of interest. 

With the establishment of the OPC, and also with the potential for an imminent fresh start at the FDIC, I am optimistic that the FDIC will eventually put itself on a path to true change and actual accountability. The FDIC employees and the American public deserve no less.

1In May, Cleary Gottlieb released its report documenting sexual harassment and other misconduct at the FDIC of a scale and nature that shocked the conscience. Cleary Gottlieb’s report also identified potential misconduct by several current FDIC executives. Cleary Gottlieb did not make any finding as to the merits of these allegations, as full investigations of specific allegations were beyond the scope of its mandate. Instead, recognizing that management could not investigate itself, Cleary Gottlieb recommended that these allegations, and any other allegations of misconduct by FDIC executives, be investigated by independent third-party firms. Cleary Report at 171.
2This had not previously been an option because the OPC had not been established and staffed.
3In an August 16 5:53 P.M. email to the full Board twelve days before its decision, I itemized several significant obstacles and expressed some dismay that the Board was actually considering this approach. My dissent to the August decision raised concerns about the approach’s feasibility, stating “[t]he Board [has] instead adopted a convoluted and complicated process . . . to maybe someday, somehow, sort of investigate some subset of those allegations on behalf of the FDIC.” My dissent also stated:
 
 The complexity of the approach adopted today, especially the reliance on NCUA, GSA, or another regulator as a middleman, poses significant and unnecessary execution risk and provides the Board with little control over, or assurances as to, the competence of the outside investigators or the quality of their work. Even if feasible, the approach adopted today could lead to lengthy and unnecessary delays to negotiate contracts with the middleman and then that middleman’s outside investigators; indeed we are already aware of some practical impediments to those negotiations. (emphasis added) 
4In June, a month after the publication of the Cleary report, I raised concerns with the other Board members about the FDIC’s lack of progress on these investigations. After continued inaction, on July 19, I circulated among the Board members a proposal to establish a committee modeled on the Special Committee that oversaw Cleary Gottlieb’s review and task that committee with developing a plan for these investigations. Over the next month and a half, Vice Chairman Hill and I have engaged in lengthy discussions and even debates with the other Board members, including at two Board meetings that were closed to the public, to persuade at least one of the other Board members to support a consensus approach. On August 28, a 3-2 Board majority voted down my proposal and instead adopted this unworkable approach to outsource the investigations to another government agency. FDIC staff then spent the last 11 weeks trying to make that approach somehow work.

Last Updated: November 12, 2024