The Office of Thrift Supervision should have been tougher with PFF Bank and Trust, but delaying a formal action against the Pomona, Calif., thrift while an investor mulled a takeover was proper, a watchdog said Friday.

The Treasury Department's inspector general said the OTS could have taken more aggressive action in reining in PFF's construction loan troubles and forcing the $3.7 billion-asset thrift to raise capital. The agency's own "failed bank review concluded that OTS did not effectively follow up on its October 2002 limited examination" to limit PFF's concentrations.

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