WASHINGTON — The Office of Thrift Supervision abruptly announced late Thursday that Treasury Secretary Tim Geithner had removed Scott Polakoff as the thrift agency's acting director, and appointed John Bowman, its deputy director and chief counsel, to assume that role.
The decision appeared to be linked to questionable backdating of capital at thrifts, but the OTS would not comment beyond a terse press release. A Treasury spokesman was not immediately available for comment.
"Polakoff, who was serving as acting director, is on leave pending a review by the Department of the Treasury of the OTS's August 2008 actions related to post-period capital contributions," said the release.
The sudden switch in leadership caught observers off guard. Polakoff had testified on behalf of the agency with other regulators before the House Financial Services Committee just a day before the announcement.
The announcement also comes at a turbulent time for the agency.
Polakoff, the senior deputy director and chief operating officer, had only been at the helm for a month. He assumed the role of acting director after former director John Reich stepped down Feb. 27.
The agency is under fire for its oversight of prominent recent financial failures: IndyMac Bancorp., Washington Mutual and American International Group, which had a thrift.
A regional director was removed in December over allegations he allowed backdating of capital for IndyMac, shortly before the thrift was shutdown by regulators.
Darrel Dochow was removed from his responsibilities as regional director of the West while the government investigates the matter.
The Treasury Department's Office of Inspector General said at the time that Dochow allowed IndyMac to count a May 9 infusion of capital from its holding company toward its first-quarter capital ratio.
According to the inspector general's office, OTS officials may have made similar allowances for other thrifts.
The inspector general's office had been investigating the IndyMac failure as part of an automatic material loss review ordered when a collapse costs the government a significant amount of money. That review sharply criticized the OTS' handling of IndyMac, saying it allowed problems at the thrift to fester.
Reich later acknowledged that the OTS has allowed the backdating, but he said that doing so had little impact on the thrift.
Backdating the capital infusion allowed the $30 billion-asset IndyMac to stay above a 10% capital ratio threshold — and avoid complying with brokered deposit restrictions, which are automatically triggered when an institution is no longer considered "well" capitalized. IndyMac Bank relied heavily on brokered deposits, which totaled $6.3 billion on May 11. (Without the added injection, it would have had a 9.98% ratio and would have been considered "adequately" capitalized.)
Though it would have had to apply to the Federal Deposit Insurance Corp. for permission to continue its brokered deposit activity, Mr. Reich said that its brokered deposits were declining anyway at the time, dropping from $6.3 billion on May 11 to $5.2 billion on June 27.
"While we believe that the above information shows that the $18 million capital contribution issue is a relatively small factor in the events leading to the failure of IndyMac, we also recognize that we must take certain actions to ensure that OTS remains a well-managed regulatory agency," Mr. Reich wrote in a letter.
The inspector general's office said it would continue to assess the situation in a separate audit.
Bowman joined the OTS in June of 1999 as the deputy chief counsel for business transactions. In May 2004 he was promoted to chief counsel. Prior to joining OTS, he was a partner with the law firm of Brown & Wood LLP in Washington, D.C., specializing in government and corporate finance, securities and financial services regulation.
Before going into private practice he spent several years as the assistant general counsel for banking and finance at Treasury.
"What he brings to the table is that he was a very senior lawyer at Treasury before he did a stint in the private sector," said V. Gerard Comizio, a lawyer at Paul, Hastings, Janofsky & Walker LLP. "He is an outstanding lawyer and great manager who is well known by the Treasury folks."