Amazing. Thanks to a regulator at the Office of Thrift Supervision helping cover up IndyMac’s shortage of funds, Indymac continued operating as usual for months longer than it should have. The law requiring adequate capitalization was avoided. Estimated cost to the FDIC, 8 to 9 billion.
IndyMac Regulator Permitted Capital Backdating, Watchdog Says 
By Alison Vekshin, at Bloomberg
IndyMac Bank’s regulator let the mortgage lender backdate a capital infusion to maintain “well- capitalized” status and escape regulatory restrictions months before it failed, the Treasury Department’s watchdog arm said.
The Office of Thrift Supervision allowed IndyMac Bank to record $18 million of a $50 million infusion from its holding company on May 9 as first-quarter capital, Eric M. Thorson, the Treasury Department’s inspector general, wrote yesterday in a letter to U.S. Senator Charles Grassley of Iowa, the top Republican on the Senate Finance Committee. IndyMac was closed by the OTS on July 11 after a run on deposits depleted its cash.
“It is unclear what information OTS had at the time and what its basis was for allowing the capital infusion to be recorded for the quarter ending March 31,” Thorson wrote. “A separate inquiry as to a motive for approving and recording this transaction in the manner it was recorded is still ongoing.”
The move came to light as part of a routine federal investigation into the failure of IndyMac, one of five OTS- regulated lenders to be shuttered this year. The regulator also oversaw Washington Mutual Inc., whose September collapse was the biggest bank failure in U.S. history.
In his letter, Thorson said the U.S. Securities and Exchange Commission reviewed a “workpaper” prepared by Ernst & Young LLP, IndyMac’s auditor. The paper described a telephone conversation involving IndyMac’s chief executive officer, Ernst & Young auditors and OTS West Region Director Darrell Dochow in which they discussed the capital injection.
Problem Solved
The infusion solved a problem for IndyMac because Ernst & Young indicated it wouldn’t sign off on a review without “adjustments relating to the bank’s capitalization,” Thorson wrote. IndyMac needed Ernst & Young to sign the review to meet an SEC requirement for filing its first-quarter financial statement, he said in the letter.
Dochow, who approved the backdating, has been removed from his job,…
The backdating let IndyMac restore its risk-based capital ratio to the 10 percent “well-capitalized” minimum threshold in the first quarter. It also enabled the lender to avoid complying with a law that requires banks to get an FDIC waiver to accept brokered deposits, Thorson wrote… Read more here.
Further explanation by Steve Henn for Marketplace:
IndyMac backdating helped downfall
Steve Henn: According to the Treasury Department’s Inspector General, Eric Thorson, a regulator at the Office of Thrift Supervision allowed IndyMac to backdate an infusion of new capital last spring. The new cash let the bank appear healthy in public filings, when in fact it had so little money, normal rules would have required it to stop accepting brokered deposits…
Republican Sen. Charles Grassley of Iowa is outraged.
Sen. Charles Grassley: What was done in the case of IndyMac was a violation of law costing the FDIC $8 [billion] to $9 billion.
According to Inspector General Thorson, other thrifts like Indy Mac were also permitted to backdate capital infusions on their public filings. But just which banks were involved hasn’t been revealed.
