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OTS Regulator Let IndyMac Falsify Financial Reports

According to a report released last week by the _""New York Times"":http://www.nytimes.com_, an independent investigator of the ""U.S. Treasury Department"":http://www.treasury.gov has uncovered evidence that officials from the nation's banking supervisory body, the ""Office of Thrift Supervision"":http://www.ots.treas.gov/ (OTS), helped the failing IndyMac Bancorp ""paper over"" its financial difficulties. Just two months before IndyMac went under, a top federal banking regulator allowed the bank to backdate an $18 million capital infusion from its parent company to cover up a first quarter deficit and ultimately gloss over its deepening problems, the _Times _said.
IndyMac was seized by the ""Federal Deposit Insurance Corporation"":http://www.fdic.gov/bank/individual/failed/IndyMac.html (FDIC) in July, at a cost of $8.9 billion to taxpayers. The bank's collapse has largely been attributed to its activities as a top player in the subprime mortgage market. According to analysts, IndyMac was already sinking when the delusive accounting maneuver occurred, the _Times _said, primarily because of rising default rates and a stockpile of subprime loans on its books that investors would not buy. The false financial filings however, positioned IndyMac as a ""well-capitalized"" institution and prolonged the life of the company two months past its tipping point.
These new findings are raising questions about the OTS's relationship with the companies it regulates and about its role in the collapse of several of the nation's largest banks this year, including Washington Mutual and Countrywide Financial, the _""Washington Post"":http://www.washingtonpost.com_ said of the news.
""The role of the Office of Thrift Supervision, as the name says, is to supervise these banks, not conspire with them,"" said Sen. Charles E. Grassley (R-Iowa) in a ""statement"":http://grassley.senate.gov/news/Article.cfmxcustomel_dataPageID_1502=18591 issued following a briefing from the Treasury's inspector general on his findings. ""If the Office of Thrift Supervision is turning a blind eye to capitalization requirements, Congress needs to know. It's good the inspector general has opened a full-blown audit as a result of this case. Everyone ought to be paying very close attention.""
Industry analysts are calling the IndyMac episode an example of the ""excessively cozy relations between high-flying subprime lenders and federal bank regulators,"" the _Times_ said. According to the _Times_, Treasury investigators reported that similar officially-approved backdating appears to have occurred at other financial institutions, though they did not name which banks were being looked at.
The individual regulator who is accused of the wrongdoing is Darrel Dochow, director of OTS's west division, which supervised IndyMac, Washington Mutual, Countrywide, and Downey Savings and Loan, among other banks that have been seized or sold this year. Dochow, who is reported to have also had a hand in the savings-and-loan scandal of the 1980s, was removed from his senior regulator position last Monday, and according to the OTS, has been reassigned to work on ""special projects"" in Washington, pending completion of a separate inquiry into the matter.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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