U.S. Bank Examiners Faulted for Oversight at Failed Lenders

Nov. 27 (Bloomberg) -- Treasury Department and Federal Reserve examiners should have done more to halt risky lending at U.S. banks that failed amid real-estate losses, reports by agency watchdogs show.

Ten of the 12 bank-collapse reviews released by the Fed and Treasury inspectors general this year fault oversight weaknesses including failure to limit excessive concentration in commercial real-estate loans. Examiners from the Fed, and Treasury’s Office of the Comptroller of the Currency and Office of Thrift Supervision also failed to issue enforcement orders and hold banks accountable for recommended changes, according to reports posted to agency Web sites.

“We found that regulators conducted regular and timely examinations and identified operational problems, but were slow to take enforcement action to correct the problems,” according to a statement from the Treasury’s Office of Inspector General.

Regulators have closed 124 banks this year, the most since 1992, amid loan losses stemming from the worst financial crisis since the Great Depression. The failures have pushed the Federal Deposit Insurance Corp.’s insurance fund, used to pay customers for deposits of up to $250,000 when a bank fails, into an $8.2 billion deficit as of Sept. 30.

Inspectors general at the Fed and Treasury are required to release autopsies for some failed banks to explain collapses and assess the effectiveness of oversight. The Treasury inspector general released five reports for the OTS and four for the OCC this year. The Fed’s watchdog released three reports this year. The FDIC’s inspector general released 26 reports in the same period, citing similar concerns.

‘Opportunity to Improve’

“We agree with the IG that in several cases we should have acted more quickly, and we have taken steps to ensure more appropriate responses,” OCC spokesman Robert Garsson said. “The OTS views the results of each material loss review as an opportunity to improve our supervision and regulation of savings associations and their holding companies,” said William Ruberry, a spokesman for the thrift regulator.

Fed spokeswoman Barbara Hagenbaugh referred to central bank Chairman Ben Bernanke’s Oct. 23 speech.

“We are taking steps to strengthen oversight and enforcement, particularly at the firm-wide level, and we are augmenting our traditional microprudential, or firm-specific, methods of oversight with a more macroprudential, or systemwide, approach that should help us better anticipate and mitigate broader threats to financial stability,” Bernanke said.