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March 22nd, 2009 by Temple City Tribune
Congressman says lack of proper oversight may have cost billions of taxpayer dollars
Troubled by a report that federal regulators ignored problems at IndyMac Bank which may have cost taxpayers billions of dollars, Representative Adam Schiff has requested Congressional action. In a letter to Financial Services Chairman Barney Frank and Appropriations Subcommittee on Financial Services Chairman Jose Serrano, Rep. Schiff requested they conduct a review of the Office of Thrift Supervision (OTS).
“While the FDIC acts as an essential safety net, the federal government also has a responsibility to the taxpayers and to depositors to protect banks from taking unnecessary risks that will lead them toward failure,” Schiff wrote in the letter to Chairmen Frank and Serrano. “I am greatly concerned that the Office of Thrift Supervision (OTS) which acts as primary regulator of all federal and many state-chartered thrift institutions has failed on multiple occasions to perform their mission and protect the public and banks from financial ruin.”
Last week the Treasury Department’s Inspector General released a report that heavily criticized the OTS for missing signs that IndyMac was growing too quickly with loans that were poorly underwritten. The report stated that the OTS should have taken enforcement action against IndyMac more than two years before the bank was finally seized by the FDIC in July of last year.
Full Text of the Letter Follows:
Dear Chairmen Frank and Serrano,
The American public is justifiably concerned about the security of their savings. At a time when many have lost significant investments in real estate and the stock market, the knowledge that our money is secure in FDIC insured banks is invaluable. However, since the start of the recession, fifteen months ago, forty-one banks have collapsed, double the number that failed in the previous eight years.
While the FDIC acts as an essential safety net, the federal government also has a responsibility to the taxpayers and to depositors to protect banks from taking unnecessary risks that will lead them toward failure. I am greatly concerned that the Office of Thrift Supervision (OTS) which acts as primary regulator of all federal and many state-chartered thrift institutions has failed on multiple occasions to perform their mission and protect the public and banks from financial ruin.
As you know, on July 11, 2008, the Federal Deposit Insurance Corporation (FDIC) took over the IndyMac Bank to preserve its assets and protect insured depositors until a final resolution could be made. Last week, the Department of the Treasury’s Office of Inspector General (IG) published the results of an audit on the failure of IndyMac Bank. The report, of which I am sure you are well aware, criticizes the OTS for neglecting to take aggressive action to stop IndyMac’s high-risk business strategy which was overly reliant on the use of Alt-A and other nontraditional loan products with insufficient underwriting, credit concentrations in residential real estate in the California and Florida markets and heavy reliance on costly funds borrowed from the Federal Home Loan Bank (FHLB) and from brokered deposits.
Such negligence will cost the federal government billions and has left thousands of Americans, many of them my constituents, with over $240 million in personal losses. IndyMac was the third-largest bank failure in U.S. history and as of December 31, 2008, the FDIC estimated that the bank’s failure will cost the FDIC $10.7 billion, well over $4 billion to $8 billion cost projected immediately after the FDIC’s takeover.
According to the IG’s report, IndyMac was not the first instance where the OTS failed to enforce its regulations; a similar lack of oversight lead to the collapse of NetBank in Alpharetta, GA. I am somewhat reassured to see that OTS is taking responsibility for its carelessness, and has committed to improving its processes based on the lessons learned from the failure of IndyMac. However, I believe Congress must take an active role in helping OTS fix its broken procedures so that it can again properly regulate financial institutions and help banks avoid collapse and financial decline.
As a member of the Appropriations Subcommittee on Financial Services and General Government and as a concerned Member of Congress, I ask that both the authorizing and appropriating committees conduct a thorough review of the OTS and its processes and identify actions that may be implemented to improve the quality of its supervisory response to thrift high risk activities. After seeing firsthand the chaos and financial burden IndyMac’s collapse caused thousands of depositors and the American taxpayer, I do not want the failure of OTS’s regulatory system to lead to more unnecessary losses.
Thank you for your consideration.
Adam B. Schiff
Member of Congress