by Calculated Risk on 12/22/2008 08:14:00 PM

From the WSJ: OTS Let IndyMac Backdate Infusion

The Treasury Department's inspector general is probing the Office of Thrift Supervision for permitting a backdated capital infusion into IndyMac Bancorp a few months before its collapse in July.

The infusion allowed the bank to be classified as "well capitalized," instead of "adequately capitalized," at the end of the first quarter. That let IndyMac avoid having to take certain steps with the Federal Deposit Insurance Corp.

A top OTS official, West Region Director Darrel Dochow, was removed from his current duties in connection with the inquiry, according to letters released Monday by the office of Sen. Charles Grassley (R., Iowa). An OTS spokesman said Mr. Dochow wasn't available for comment.

In a letter to Sen. Grassley, Treasury Inspector General Eric M. Thorson said the probe would examine why Mr. Dochow allowed IndyMac to record $18 million in capital as received from its holding company before March 31, 2008, even though the injection occurred after that date.

This was the culture at the OTS - anything to help the "customers". The OTS competed with other regulators for "customers" (aka banks), and the OTS offered more "flexible" supervision - perhaps even backdating capital infusions!

For a great article on the OTS, see the WaPo: Banking Regulator Played Advocate Over Enforcer

When Countrywide Financial felt pressured by federal agencies charged with overseeing it, executives at the giant mortgage lender simply switched regulators in the spring of 2007.

The benefits were clear: Countrywide's new regulator, the Office of Thrift Supervision, promised more flexible oversight of issues related to the bank's mortgage lending. For OTS, which depends on fees paid by banks it regulates and competes with other regulators to land the largest financial firms, Countrywide was a lucrative catch.

But OTS was not an effective regulator.

What a weird regulatory structure. And finally, here is the head of OTS taking a chainsaw to regulations in 2003.

This photo from 2003 shows two regulators: John Reich (then Vice Chairman of the FDIC and later at the OTS) and James Gilleran of the Office of Thrift Supervision (with the chainsaw) and representatives of three banker trade associations: James McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, and Ken Guenther of the Independent Community Bankers of America.