Treasury IG: 'Inappropriate' Backdating at Thrifts
The Treasury Department's watchdog has uncovered improper backdating of cash infusions at six thrifts including IndyMac, in an investigation that already has prompted the removal of the federal thrift agency's acting director.
Federal regulators were aware of the backdating at two of the thrifts, and directed or authorized those institutions to do it, the Treasury's inspector general said in a report Thursday.
Pushing back the dates of the infusions can allow banks to meet quarterly government requirements for capital reserves.
The $18 million backdated capital injection by its parent to IndyMac Bancorp—a California-based savings and loan that failed in July and cost the federal deposit insurance fund nearly $9 billion—came to light in December.
Treasury inspector general Eric Thorson had said the regulators' action in approving the move in IndyMac's case wasn't an isolated incident for the department's Office of Thrift Supervision—a disclosure that raised concerns about the agency's role as an overseer.
Thorson's new report detailed similar instances at five other thrifts, which were not named. One of them is in the West, three are in the Southeast and one is in the Northeast.
The backdating of capital injections in 2007 and 2008 was "inappropriate" for all six thrifts, the Treasury inspectors found.
"We consider these matters very serious and find it alarming that such high-level (Office of Thrift Supervision) officials were not only aware of the backdating at two thrifts, but either directed or authorized the thrifts to backdate the capital contribution," the report said.
"The accounting treatment is not in accordance with generally accepted accounting principles and allows for misleading financial reporting." Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in mortgages and other consumer loans—making them particularly vulnerable to the housing downturn.
In the case of IndyMac, the backdating to March 31, 2008, of the capital injection was done in May, allowing the bank to meet first-quarter government requirements for reserves held against possible losses.
In another case, the agency objected to backdating the injection and told the thrift's management not to, but the company did it anyway. The agency allowed it to remain, the report said.
In its response to the inspector general's report, the OTS said it has taken action to ensure that its staff fully understands the accounting requirements for capital contributions to banks from their parent companies.
"We began addressing these issues in December and we have taken the necessary actions to remedy the situation," agency spokesman William Ruberry said Thursday.
Scott Polakoff, who was OTS acting director, was placed on leave in March pending the Treasury's investigation into the regulators' actions.
Polakoff, who was the agency's chief operating officer, had held the acting-director position only since February following the resignation of Director John Reich. John Bowman was named to replace Polakoff.
Following the disclosure late last year of the IndyMac backdating, Reich removed Darrel Dochow, the OTS official in charge of the Western region, from that position.