Regulator let five thrifts violate reporting standards

The Office of Thrift Supervision let IndyMac Bank and four unidentified institutions violate the agency's financial-reporting standards, drawing more fire to the regulator after its biggest savings and loans failed last year.

Besides letting IndyMac report a capital injection that helped avoid regulatory restrictions, "the review found four cases that, for various reasons, were not acceptable by current OTS standards," OTS Director John Reich wrote Friday to Treasury Secretary Timothy Geithner and four U.S. lawmakers.

The OTS, the federal regulator of savings and loans, let IndyMac Bank record $18 million of a $50 million infusion obtained from its holding company May 9, as capital received during the quarter ended March 30, the Treasury Department's inspector general concluded last month.

The backdating was detected in a routine federal investigation into the failure of IndyMac, one of five OTS-regulated lenders to be shuttered last year.

The regulator also oversaw Washington Mutual, whose September collapse was the biggest bank failure in U.S. history.

The IndyMac backdating was disclosed in December. The four unidentified institutions cited in Reich's letter Friday were in the agency's Northeast, Southeast and West regions, The Wall Street Journal reported online.

OTS West Region Director Darrell Dochow, who approved the IndyMac backdating, has been placed on administrative leave pending IndyMac reviews and investigations, Reich wrote. Dochow, a Sammamish resident, could not be reached for comment late Friday.

The agency is taking steps to ensure its West Regional Office is "fully compliant with all OTS supervisory policies and practices," wrote Reich. An OTS regional accountant was assigned to conduct a forensic accounting review and an outside expert was hired for an independent investigation of that office's management, he wrote.

The agency has become a target for lawmakers as the Obama administration and Congress consider an overhaul of U.S. financial regulations. Former Treasury Secretary Henry Paulson in March suggested merging OTS with the Office of the Comptroller of the Currency, which regulates national banks. Lawmakers have faulted the agency for failing to identify problems at the lenders it oversaw.

IndyMac's capital injection was recorded in the first-quarter report, rather than when received in the second, and let the bank avoid slipping below a "well capitalized" standing, avoiding an order for the lender to raise capital, OTS said in the letter.

"We have concluded that the $18 million capital infusion that occurred on May 9, 2008, should not have been included in IndyMac's thrift financial report for March 31, 2008," Reich wrote. The letters were obtained by Bloomberg News through a Freedom of Information Act request.

Rep. Spencer Bachus, of Alabama, the ranking Republican on the Financial Services Committee, asked in an e-mailed statement that lawmakers investigate "how and why the OTS permitted IndyMac to backdate capital injections as well as other instances of regulatory flexibility gone bad."

"It is troublesome to hear so many instances of regulators picking and choosing what they enforce," Bachus said.