US bank regulator says unfairly tarnished by WaMu

* OTS’s Bowman says WaMu was well capitalized when failed

* Says OTS regulated biggest bank “allowed to fail”

* Highlights liquidity troubles as cause of collapse

By Karey Wutkowski

WASHINGTON, April 16 (BestGrowthStock) – The head of the U.S.
agency that supervises savings and loan banks said on Friday
that his agency has been unjustly criticized for overseeing the
largest bank failure in U.S. history.

John Bowman said the Office of Thrift Supervision only
earned the distinction of managing the largest failure —
involving Washington Mutual, which was seized in September 2008
— because the government swooped in to avert the collapses of
other institutions such as Citigroup (C.N: ) and Bank of America
(BAC.N: ).

“The OTS did not regulate the largest bank that failed. The
OTS regulated the largest bank that was allowed to fail,”
Bowman, acting director of the agency, said in testimony
prepared for a Senate subcommittee on investigations.

The Senate panel is using Washington Mutual as a case
history to explore the role that high-risk loans and bank
regulators played in the financial crisis.

Bowman’s remarks struck a similar tone to those from former
Washington Mutual Chief Executive Kerry Killinger, who
testified before the committee on Tuesday. [nN13244066]

Killinger said regulators unfairly seized Washington Mutual
in 2008 because the Seattle-based savings and loan fell outside
an inner circle of Wall Street banks that were “too clubby to
fail.”

The Senate panel painted a different picture. It said
Washington Mutual switched to a profit-seeking culture
involving fraudulent and risky loans that were then securitized
and spewed across the financial system. [nN12207084]

The panel, chaired by Senator Carl Levin, also found that
the OTS took a friendly approach to Washington Mutual, whose
fees represented a good chunk of the OTS’s revenue.

Former OTS director John Reich even referred to Killinger
as “my largest constituent.” [nN15241295]

The OTS in recent years has been painted by lawmakers as a
poster child for lax regulation. Troubled insurer American
International Group Inc (AIG.N: ) handpicked the OTS as its
primary regulator, despite the agency’s lack of experience in
policing large corporations.

The agency would be essentially eliminated in financial
reform legislation moving through Congress.

Bowman on Friday said the OTS took repeated actions to get
Washington Mutual to shore up its capital and put a stronger
business plan in place.

Bowman said it was a liquidity crisis, not a lack of
capital, that caused Washington Mutual’s failure.

He pointed to the failure of IndyMac Bank in July 2008 and
media speculation in September 2008 about Washington Mutual’s
viability as blows that damaged the bank.

“Poor earnings and asset quality problems created
additional liquidity concerns because continued deterioration
in these areas could have significantly reduced the level of
available funding sources. Nonetheless, WaMu was well
capitalized when it was placed into receivership,” Bowman
said.

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(Reporting by Karey Wutkowski; Editing by Steve Orlofsky)

US bank regulator says unfairly tarnished by WaMu