OTS Mess Didn’t Come Out of Nowhere

The mini-scandal at the Office of Thrift Supervision is big news this morning. Apparently, a regulator allowed IndyMac to fudge its books to make it look healthier than it was. This same regulator got in trouble in the S&L scandal twenty years ago.

The Washington Post reports that the regulator, Darrel Dochow, did the same with other banks.

The Times and Journal have stories, too, but the news reminds me that the Washington Post had an excellent front-page story just a month ago on the backward culture at OTS, which is a key banking regulator. Here was the headline then:

Banking Regulator Played Advocate Over Enforcer Agency Let Lenders Grow Out of Control, Then Fail

The Post raises similar points in its story today, but mostly through quotes from sources.

“It is their job to be a cop,” said Bart Dzivi, a lawyer who represents financial services institutions in Northern California. “But Darrel Dochow and senior management take the view, ‘We’re working with these institutions to help them with their problems.’ They see themselves as consultants, not cops.”

It would have been nice for the paper to more clearly make the point in its own language that Dochow was not exactly a fish out of water at OTS. The same reporters already had the reporting to back it up.

The Times has some nice context here:

William K. Black, a senior bank regulator during the savings and loan crisis and the author of “The Best Way to Rob a Bank is to Own One,” said Mr. Dochow’s lenience highlighted the longstanding unwillingness of the Office of Thrift Supervision to take charge.

“The O.T.S. did nothing effective to regulate any of the specialized large nonprime lenders,” Mr. Black said. “So what you got was what the F.B.I. accurately described as early as 2004 as an epidemic of mortgage fraud.”

Mr. Black said that the Office of Thrift Supervision had never put IndyMac on its watch list of troubled institutions before the Federal Deposit Insurance Corporation took it over in July and booked a loss of $8.9 billion to its insurance fund.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.