|
 |
 |
|
Audit: OTS knew bank data skewed
-
05/21/09 03:59 PM ET
Federal regulators directed or allowed the manipulation of financial records at six banks that led to misleading statements about the financial health of the institutions, a government watchdog concluded on Thursday.
Officials at the Office of Thrift Supervision (OTS), including the agency’s then-senior deputy director, Scott Polakoff, engaged in “inappropriate” and “alarming” actions that allowed the banks to backdate the contributions during the past three years, according to an audit from the Treasury Department’s Inspector General.
IndyMac Bank was authorized to backdate a contribution that made the bank appear healthier than it was two months before it failed in July 2008.
“We consider these matters very serious and find it alarming that such high-level OTS officials were not only aware of the backdating at two thrifts, but either directed or authorized the thrifts to backdate the capital contribution,” the inspector general concluded, noting that the practice contravenes generally accepted accounting practices.
Thrifts are banks that focus primarily on originating loans and holding savings deposits.
Polakoff, named acting director in February, has been on leave during the investigation. Treasury Secretary Timothy Geithner said this week that he is working to name a permanent head of OTS.
OTS acting director John Bowman said in a letter this week in response to the audit that the “agency is committed to continuing to improve and strengthen its processes.”
The report is the latest round of criticism of OTS, a division of the Treasury Department that supervises savings and thrifts. OTS has been rebuked for failing to exercise adequate oversight of some of the nation’s largest banks before they failed in the financial crisis. Countrywide, Washington Mutual, IndyMac and American International Group (AIG) all fell under OTS jurisdiction. The AIG bailout has required more than $180 billion in government commitments.
“This report paints the disturbing picture of a regulatory agency being much too cozy with the industry it’s supposed to be regulating,” Sen. Chuck Grassley (R-Iowa) said. “It’s completely unacceptable that the Office of Thrift Supervision allowed itself to become a party to misleading depositors and investors about when the thrifts received additional capital. The agency needs to make sure this doesn’t happen again and hold the appropriate people accountable.”
In the case of one of the six thrifts, according to the audit, Polakoff directed the agency’s regional office to instruct the firm to contribute capital and backdate the transaction by more than one month, from August to June 2008.
But as of Feb. 11, 2009, auditors found that the thrift was “critically undercapitalized.”
In IndyMac’s case, which touched off the inspector general inquiry, an agency regional director authorized the backdating. An earlier letter from the inspector general’s office named Darrel Dochow as the OTS Western region director involved in IndyMac’s case.
IndyMac was allowed to backdate a May capital contribution to the end of March, allowing the firm to maintain its well-capitalized status and avoid a legal requirement from the Federal Deposit Insurance Corporation. Dochow has retired from the federal government, according to the report.
In three other cases, OTS eventually allowed the backdating to occur.
OTS took corrective action in only one of the six cases and required the thrift to restate financial reports in 2007. The report notes further that OTS lacks specific guidance for bank examiners to identify backdated contributions.
Officials at the Office of Thrift Supervision (OTS), including the agency’s then-senior deputy director, Scott Polakoff, engaged in “inappropriate” and “alarming” actions that allowed the banks to backdate the contributions during the past three years, according to an audit from the Treasury Department’s Inspector General.
IndyMac Bank was authorized to backdate a contribution that made the bank appear healthier than it was two months before it failed in July 2008.
“We consider these matters very serious and find it alarming that such high-level OTS officials were not only aware of the backdating at two thrifts, but either directed or authorized the thrifts to backdate the capital contribution,” the inspector general concluded, noting that the practice contravenes generally accepted accounting practices.
Polakoff, named acting director in February, has been on leave during the investigation. Treasury Secretary Timothy Geithner said this week that he is working to name a permanent head of OTS.
OTS acting director John Bowman said in a letter this week in response to the audit that the “agency is committed to continuing to improve and strengthen its processes.”
The report is the latest round of criticism of OTS, a division of the Treasury Department that supervises savings and thrifts. OTS has been rebuked for failing to exercise adequate oversight of some of the nation’s largest banks before they failed in the financial crisis. Countrywide, Washington Mutual, IndyMac and American International Group (AIG) all fell under OTS jurisdiction. The AIG bailout has required more than $180 billion in government commitments.
“This report paints the disturbing picture of a regulatory agency being much too cozy with the industry it’s supposed to be regulating,” Sen. Chuck Grassley (R-Iowa) said. “It’s completely unacceptable that the Office of Thrift Supervision allowed itself to become a party to misleading depositors and investors about when the thrifts received additional capital. The agency needs to make sure this doesn’t happen again and hold the appropriate people accountable.”
In the case of one of the six thrifts, according to the audit, Polakoff directed the agency’s regional office to instruct the firm to contribute capital and backdate the transaction by more than one month, from August to June 2008.
But as of Feb. 11, 2009, auditors found that the thrift was “critically undercapitalized.”
In IndyMac’s case, which touched off the inspector general inquiry, an agency regional director authorized the backdating. An earlier letter from the inspector general’s office named Darrel Dochow as the OTS Western region director involved in IndyMac’s case.
In three other cases, OTS eventually allowed the backdating to occur.
OTS took corrective action in only one of the six cases and required the thrift to restate financial reports in 2007. The report notes further that OTS lacks specific guidance for bank examiners to identify backdated contributions.
Most Viewed RSS Feed »
