WASHINGTON (Reuters) -The Federal Deposit Insurance Corporation must make sweeping changes to address widespread sexual harassment and other misconduct, according to a damning independent report released on Tuesday which raises questions about the future of the banking regulator's leadership.

The report, prompted by a Wall Street Journal investigation, in November, cited accounts from more than 500 people, including some who alleged FDIC Chair Martin Gruenberg had engaged in bullying and verbal abuse.

Overall, the report by law firm Cleary Gottlieb paints a picture of an agency at which sexual harassment, racial discrimination and bullying were pervasive at every level and tolerated by senior leaders for years, while complaints about misconduct were met with retaliation.

"For far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct," said the report, adding that those accused of misconduct were frequently reassigned new roles.

Underscoring the agency's toxic culture, officials tasked with executing an "action plan" to address the problems exposed by the WSJ reports were themselves the subject of misconduct claims, the Cleary Gottlieb report found.

The findings will likely spark renewed calls for the ouster of Gruenberg, a Democrat who has been a senior leader at the agency for nearly two decades. Multiple Republican lawmakers in Congress called for him to step down immediately following the WSJ reports, while Democrats demanded a full investigation.

Gruenberg was described by employees as "harsh," "aggressive," and "upset" when given bad news or opinions he disagreed with, including instances of him interacting in a "demeaning and inappropriate manner," the report said.

In a statement to staff, Gruenberg said the report was "sobering" and he vowed to implement its recommendations.

He said he was "ultimately responsible" for everything that happened at the agency and apologized for any shortcomings. "I again want to express how very sorry I am," he added.

LEADERSHIP CLOUD

The report recommends the appointment of new officials devoted to changing the FDIC's culture and hiring an independent third party to assist in the transition, although it did not consider whether top leaders should resign.

It also called on the agency to establish an anonymous hotline to report misconduct and abuse, develop a more timely and transparent process for handling complaints, and take steps to ensure victims are protected and supported.

The departure of Gruenberg, who was appointed by President Joe Biden in 2022, could imperil the administration's efforts to impose stricter financial rules, including a pending regulatory proposal on bank capital requirements, that has sparked a backlash from Republicans and industry representatives.

A White House spokesperson did not respond to a request for comment.

If Gruenberg steps down or is removed, agency bylaws stipulate that FDIC Vice Chair Travis Hill, a Republican, take over, and the agency's board would be evenly split between Republicans and Democrats.