Banking Law

Earlier this  month, we headlined a post about the backdating scandal at IndyMac, "As Bad As It Gets." We were just kidding. It gets worse (paid subscription required).

The Treasury Department's inspector general is investigating whether regulators allowed the backdating of a capital transfer by BankUnited Financial Corp. that made its banking unit appear healthier than it was, according to people familiar with the matter.

The probe prompted the Treasury on Thursday to place the acting director of the Office of Thrift Supervision, Scott M. Polakoff, on leave, these people said.

The Treasury on Thursday said only that Mr. Polakoff was on leave pending a review of "the OTS's August 2008 actions related to post-period capital contributions."



[...]



Mr. Polakoff, a career federal employee, took the agency's reins last month after several years as its second in command. His absence surprised some OTS employees and industry officials, who said they hold Mr. Polakoff in high regard.

BankUnited is apparently one of the "four other instances" of backdating of capital contributions that the OTS uncovered in a internal investigation a couple of months ago, and that insipid intrepid "investigative reporter" for ABC News, Brian Ross, squawked about as he unsuccessfully chased Darrel Dochow around the block in a vain attempt to get him to spill some beans about backdating at IndyMac. I wonder if we'll get a "back-dater-of-the-month" disclosure from the OTS for the rest of this spring?

Dochow took early retirement. As a bigger fish in the OTS pond, Polakoff might take a harder hit if it's discovered that he knew about this pattern of backdating and let it slide, or worse, approved it. At present, there's no public evidence of anything other than that it happened on his watch, so at the very least, he's likely to have to fall on his sword. Whatever the ultimate result, it appears his career at the OTS will not end with him covered in glory.

Stepping into the breach is OTS General Counsel John Bowman, a guy who, I think, was one of the originators of the "shelf charter" concept now adopted by the OCC, as well as the OTS, to smooth the way for private investors to buy broken banks. Being appointed Acting Director of the OTS must feel like being promoted to Captain of The Titanic. It's an honor, sure, but my guess is that John might just as soon have been manning a lifeboat.

One of Mr. Polakoff's last public speeches is now rendered especially ironic.

As recently as last week, Mr. Polakoff had been appearing at industry events and defending the OTS's role in the face of a likely reorganization of the federal bank-regulatory apparatus.

"While there's a lot of crises right now, I don't think there's a crisis on the regulatory front," he said in a speech last Saturday at a community-bankers convention in Phoenix.

 I suppose, as one ex-President mused about the definition of the word "is," it all depends on how you define "crisis." If the OTS is not currently in a state of crisis, it's certainly in the next best thing to that state. And it's only going to keep getting worse.