Regulator Let Bank Backdate Its Books (Jessica Holzer)

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Cooked Books

December 23, 2008- WASHINGTON -- 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.{xtypo_quote_right} "The OTS is an agency that has got a particular need to reform," said Karen Shaw Petrou, managing partner in Federal Financial Analytics, a financial-industry consulting company based in Washington D.C. But she added that all financial regulators showed lapses during the boom and were prone to "looking the other way, hoping for the best and giving institutions way too much credit for unproven assertions." {/xtypo_quote_right}

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 cmment.

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.

In a letter to Mr. Thorson released by Sen. Grassley's office, OTS Director John M. Reich suggested the $18 million capital injection occurred May 9. However, in his letter to Sen. Grassley, Mr. Thorson cited conflicting evidence about whether the contribution occurred in April or May.