When the government seized IndyMac Bank in July, many of its investors and customers wondered why regulators hadn't intervened sooner to prevent one of the costliest bank failures in U.S. history.
An answer came Monday when the Treasury Department's inspector general said a government official had allowed the Pasadena mortgage lender to alter its financial statements in a way that delayed disclosure of the extent of its problems.
As a result of the inspector general's inquiry, which is continuing, Darrel W. Dochow was relieved of his duties as Western regional director of the federal Office of Thrift Supervision pending an inquiry, the agency said in a letter released Monday.
In a May 9 phone call, Dochow agreed to allow IndyMac to record a $50-million capital infusion received that day from IndyMac's parent company as if it had been received before March 31, the inspector general said.
The move allowed the savings and loan to report that it was "well capitalized" at the end of the first quarter, meaning it was financially strong enough to stay in business.
Two months later, IndyMac failed at an estimated cost to the federal deposit insurance fund of $8.9 billion.
If the backdating had not been allowed, the Federal Deposit Insurance Corp. might have been able to facilitate a sale of the company at no cost to the insurance fund, as it did in September with Washington Mutual Bank.
Regulators at the Office of Thrift Supervision, which oversees savings and loans, "did not want to lose control of IndyMac and hand it over to the FDIC, so they let IndyMac play this game," said William Black, a former Office of Thrift Supervision attorney who teaches law at the University of Missouri in Kansas City.
The Times had reported in October that Dochow had returned to a senior post after having been demoted because of his role in the 1989 collapse of Lincoln Savings & Loan, at the time the biggest bank failure ever. Two years earlier, Dochow, then the head of supervision and regulation at the Federal Home Loan Bank Board, had rebuffed recommendations from regulators in California and other states calling for Lincoln to be put out of business.
"This guy is the most infamous banking regulator in the country, and somehow he ended up back in charge," Black said.
In a letter to the Treasury inspector general dated Sunday, John Reich, director of the Office of Thrift Supervision, called the backdating "a relatively small factor in the events leading to the failure of IndyMac." A spokesman for the agency said that Dochow would not be available for comment.
