The FDIC Chair is under pressure to step down following a critical assessment, with potential consequences for the banking industry.

FDIC Chair under pressure to step down amidst harsh criticism; potential consequences for financial institutions may be far-reaching.

If he pays attention to the demands, it could result in severe consequences for banks all over the nation.

The study, conducted by the law firm Cleary Gottlieb Steen & Hamilton and commissioned by the FDIC, confirmed the findings of a November Wall Street Journal investigation exposing an ongoing toxic environment. It did not point the finger solely at Gruenberg for the complex problems described in the report, which was based on interviews with more than 500 employees.

"We acknowledge that, as several FDIC employees pointed out regarding Chairman Gruenberg, 'culture starts at the top'," the report stated.

It also chronicled several episodes where Gruenberg flew off the handle, especially when met with bad news or disagreed with the views presented. This caused staffers to hesitate before sharing news they believe may upset him. Gruenberg's temperament "could impede his capacity to establish trust and confidence in promoting meaningful cultural change," the report added.

Gruenberg failed to respond to a call for comment. An FDIC spokesperson informed CNN that Gruenberg "is already acting on the recommendations in the report" and that "under his direction," the agency is "working to identify and appoint a transformation monitor as well as an independent third-party specialist to support these initiatives."

The majority of legislators urging Gruenberg, a Democrat named by President Joe Biden, are Republicans. With the exception of Democratic Representative Bill Foster, Democrats have refrained from requesting Gruenberg's resignation.

That's probably because if Gruenberg left, Vice Chairman Travis Hill, a Republican appointee, would automatically assume the position of chairman until a replacement selected by the president and confirmed by the Senate takes over. As a result, the agency would be tied up with one other Republican and two Democratic members on its board of directors.

Regulatory action would come to a halt, according to Dennis Kelleher, president and CEO of Better Markets, a group that advocates for financial sector oversight. With Hill at the helm of the FDIC, there would also be little inclination to collaborate with the Federal Reserve and Office of the Comptroller of the Currency to pass any kind of regulations that would bolster bank capital requirements.

The three agencies approved the preliminary phase of rules referred to as Basel III Endgame last year, which would obligate the nation's largest banks to set aside more capital, thus limiting the funds they have available for lending to clients. The agencies are currently analyzing the original proposal, which Hill voted against, and may propose new regulations based on the feedback they received.

That's why Jaret Seiberg, a policy analyst at TD Cowen, remarked in a Tuesday note, "Gruenberg's departure would be a plus for the bigger banks."

Seiberg doesn't believe Gruenberg will resign, though, particularly as progressive Democrats like Senator Elizabeth Warren have not requested his resignation. Similarly, White House press secretary Karine Jean-Pierre did not indicate that Biden has any reservations about Gruenberg's ability to lead the FDIC.

Kelleher also raised concerns about Hill's responsiveness to a banking crisis like last year's, in which the FDIC played a crucial role in mitigating the impact. Even though Hill was not in charge of the agency at the time, there is no evidence that he would extend or worsen a banking collapse.

Hill, through an adviser, refused to comment.