There is an agency of the United States Department of the Treasury called the Office of Thrift Supervision (OTS) that is the primary regulator of federal savings associations. In other words, a watchdog.
Congress established the Office of Thrift Supervision in 1989 after the Savings & Loan crisis. However, OTS does not receive appropriations from Congress to fund its oversight operations; instead the entire budget of the agency is paid by assessments on the institutions it regulates. See a problem with that?
Former OTS director, James Gilleran, said the agency’s goal was to “allow thrifts to operate with a wide breadth of freedom from regulatory intrusion.” He wielded a chain saw at a press conference to symbolize cutting through red tape, and he consolidated exams allowing thrifts to conduct “self-evaluations of their compliance with consumer laws.”
That’s right. OTS allowed thrifts to police themselves.
Apparently, Countrywide Financial, instigator of subprime mortgages, liked the idea of a wide breadth of freedom from regulation, since they switched to OTS in the spring of 2007 as their regulator, when they felt pressured by federal agents charged with overseeing them.
Countrywide was promised more flexible oversight of issues related to the bank’s mortgage lending and OTS, which depends on fees paid by banks it regulates and competes with other with other regulators to land the largest financial firms, Countrywide was a lucrative catch. It seemed like a perfect marriage for both. (Washington Post)
At about that same time, 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,” tried to raise the alarm when he wrote for “Dollars & Sense, The Magazine for Economic Justice.”
The U.S. financial system is, once again, in crisis. Or, more precisely, twin crises—first, huge numbers of defaults among subprime mortgage borrowers, and second, massive losses for the holders of new-fangled investments comprised of bundles of loans of varying risk, including many of those subprime mortgages.
These crises should shock the nation. Our largest, most sophisticated financial institutions have followed business practices that were certain to produce massive losses—practices so imprudent, in precisely the business task (risk management) that is supposed to be their greatest expertise, that they have created a worldwide financial crisis.
His warnings went unheeded, and as we now know, financial institutions would start falling like dominos within a year. IndyMac was just the beginning.
Now it has come to light that last May, according to the New York Times, that the western regional director/senior regulator from the Office of Thrift Supervision, Darrell Dochow, allowed IndyMac Bank to receive $18 million from its parent company on May 9 but to book the money as having arrived on March 31, to preserve its status as “well-capitalized.”