For a hot second last week, some observers may have thought the Federal Reserve would slide back into position as the most maligned regulator in the banking sphere (by lawmakers). 

It certainly seemed to hold that title in late 2021, after financial disclosure forms for two regional Fed presidents — and later the central bank’s chair and vice chair — revealed stock trading that raised ethical questions. But the agency quickly revised its rules, and frustrations swung back — as they often do — to the Consumer Financial Protection Bureau, a default true north for lawmaker ire — from one political party, at least.

When the Fed led the charge in proposing heightened capital requirements in July, the outcry was swift, loud and long-lasting. In November, just before the Fed’s vice chair for supervision, Michael Barr, was set to testify on Capitol Hill — alongside the leaders of the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — 39 Republican senators asked the agencies to withdraw the capital requirements proposal.

But a strange thing happened: An exposé from The Wall Street Journal — detailing allegations of sexual misconduct and a toxic workplace culture at the FDIC — interrupted that narrative. Over the next month, lawmakers demanded answers — or, in some cases, the resignation of agency Chair Martin Gruenberg. Gruenberg, meanwhile, set out to reassure employees. The FDIC’s Office of the Inspector General launched a review. And the agency hired an outside law firm. The FDIC even received a new IG. The fervor, for a while, died down.

So when the Fed’s OIG released its report last week clearing its regional now-ex-presidents in the stock-trading scandal, perhaps some observers girded for a retread of backlash at the central bank. Instead, a day later, news broke that an FDIC attorney had pleaded guilty to conspiracy to produce child pornography and one count of coercion and enticement.

Questions surrounding the FDIC’s culture brewed anew. Indeed, it appears, it is simply the FDIC’s turn to be the black sheep of banking regulators.

Sen. Joni Ernst, R-IA, wrote letters Friday to both Gruenberg and Jennifer Fain, the new FDIC IG, demanding action. 

Ernst has arguably has been the most vocal advocate for regime change at the FDIC since the toxic-culture allegations surfaced in November. (In that vein, her role is akin to Democratic Sen. Elizabeth Warren’s with the Fed’s stock-trading scandal.)

Ernst twice publicly called for Gruenberg’s ouster in November — once on social media after the FDIC chair changed his testimony in regards to whether he had ever been investigated for misconduct, and again in a letter directly to Gruenberg.

Ernst on Friday skewered Gruenberg for not responding to her first letter.

“While the plights of working adult women of the [FDIC] may not move you to respond to a congressional oversight request, perhaps an inquiry into an FDIC employee producing child pornography will,” Ernst wrote Friday.

At issue is the timeline of administrative action taken against Mark Black, the onetime FDIC attorney who faces at least 15 years in prison on charges that he induced a prepubescent girl in 2019 to engage in sexually explicit conduct on a live-streaming app while screen-recording that activity.

The FDIC placed Black on paid administrative leave after it was notified that federal agents executed a search warrant at his home in June, an agency official told The Wall Street Journal last week.

Black was indicted Sept. 14 and arrested the next day, according to court records. The FDIC, at that point, sought to remove Black but struggled to serve him with legally required notice, the agency official told the Journal. Black also contested the FDIC’s removal effort when he was notified, the official added. The FDIC indefinitely suspended Black without pay in November. 

Ernst, for her part, asked Gruenberg who at the FDIC “opted to not utilize all available tools to expedite Mr. Black’s removal.”

Under federal labor laws and regulations, employees are entitled to 30 days’ notice if an agency has reasonable cause to believe an employee has committed a crime for which they may be imprisoned. But agencies can seek to remove an employee or place them on indefinite suspension within seven days.

Ernst also asked Gruenberg whether Black remains eligible to receive a pension from the FDIC, or benefits such as health insurance.

In a statement seen by The Wall Street Journal, the FDIC said it was “deeply disturbed and shocked to learn of the allegations” against Black but that the alleged crimes were “not related to the FDIC and didn’t involve FDIC devices and systems.” 

Black’s guilty plea, Ernst wrote to Fain, ramps up the urgency for culture change at the FDIC.

“Simply put, it appears the rot at the FDIC, which is now your responsibility to address, runs far, far, deeper than The Wall Street Journal’s investigative reporting,” the senator wrote. “It is past time to rebuild the FDIC’s failing reputation.”

The bulk of Ernst’s letter to Fain, however, focuses on the November misconduct allegations — and specifically calls out a review the FDIC’s OIG completed in 2020, which, the senator said, “clearly led to no tangible change in the day-to-day workplace culture at the FDIC.”

In the present day, whistle-blowers have told Ernst’s office they have been unable to report misconduct to third-party investigators looking into the FDIC’s workplace culture and cannot get responses the OIG’s tips hotline, the senator wrote.

“The women of the FDIC deserve not only a top-to-bottom overhaul of their workplace, they deserve justice,” Ernst wrote. 

Ernst asked Gruenberg to reply by Friday but gave Fain no such timeline.