US Probes Whether Failed Bank Execs Hid Bad Loans

The Office of the Comptroller of the Currency and the Department of Treasury Inspector General are investigating whether or not certain national bank executives lied to or misled bank examiners, CNBC has learned.


The investigations stem from mandatory audits — called “material loss reviews” — conducted by government accountants in the wake of bank failures. In a number of cases in the past year — sources put it between five and ten — auditors have found enough evidence of fraud by bankers that they referred the cases to criminal investigators within the Treasury Inspector General’s office for a more detailed analysis.

Investigators are now looking at whether bankers hid bad loans from federal bank examiners or lied to them in the months before the banks failed, the sources said.

“These are cases that involve possible misrepresentation or false statements to bank regulators and impeding their work in conducting a proper investigation of the bank,” Treasury Inspector General Eric Thorson told CNBC.

It is not clear which banks are being targeted, and Thorson declined to give details of the ongoing investigations. In public correspondence, he has said that the investigations centered on national banks that were overseen by the Office of the Comptroller of the Currency.

The IG has revealed the outcomes of material loss reviews of six OCC regulated banks over the past year, failures that caused more than $2 billion in losses to the FDIC, according to the IG reports.

But Thorson is not pleased with what he says is stonewalling by the Office of the Comptroller of the Currency, which regulated the banks in question.

“The [office of the Inspector General] is being denied unrestricted and unfettered access to information from the Office of the Comptroller of the Currency (OCC) for use in investigations of possible fraud upon the OCC by failed financial institutions regulated by the OCC,” Thorson wrote in a letter to Sens. Chuck Grassley (R-Iowa) and Tom Coburn (R-Okla.).

The dispute appears to be a turf war between the OCC and the Treasury IG over which is the more appropriate entity to investigate the alleged fraud.

A spokesman for the Comptroller of the Currency did not return a call requesting comment.