WASHINGTON — A rare report from the Federal Deposit Insurance Corp.'s watchdog said that the agency could have more actively exercised backup authority over IndyMac Bank, which collapsed last year in one of the largest failures ever.
Even though the Pasadena, Calif., thrift showed signs of risk during the real estate boom, the FDIC took a hands-off approach and relied mainly on examination results from the Office of Thrift Supervision, "which indicated … IMB was fundamentally sound," according to a report issued late Monday by the FDIC inspector general.
The Treasury's IG has already blamed the July 2008 failure of the $32 billion-asset thrift — one of the costliest ever with an estimated $10.7 billion loss to the FDIC — partly on the OTS, its primary regulator.
But the FDIC IG took the unusual step of exploring whether the FDIC, as the backup regulator, could have acted more independently to protect its insurance losses. The report was requested by FDIC Chairman Sheila Bair, but IG officials said that they had also planned on doing one.
In late 2007, the OTS approved an FDIC request to install three examiners at IndyMac as its condition worsened, but the report said the primary regulator appeared to want a limited role from the FDIC.
Still, in 2007, the FDIC downgraded IndyMac and increased its deposit insurance premiums the following year. But the report noted that even though the FDIC can in some cases issue its own enforcement action against a nonsupervised institution, it did not do so nor did it encourage the OTS to take stronger action.
The report said that the FDIC cited the OTS' generally positive Camels ratings, which can determine the magnitude of a regulator's response, as an obstacle to a tougher approach. The IG said that in such cases the FDIC should rely more on its own findings, rather than depend too much on a primary regulator.
"The FDIC could give greater consideration to its own determination of risk as insurer … in establishing its supervisory approach and assessing premiums for nonsupervised institutions, rather than relying too heavily on Camels ratings from" the primary regulator, the report said.
