Wussy regulator defends oversight of failed Washington Mutual

Facing withering attacks for failing to prevent the largest American bank failure ever, a former regulator defended his actions and pushed back against claims that he was too cozy with bank management.

Questioned about an apologetic and familiar e-mail message to the chief executive of Washington Mutual, Kerry Killenger, a former director of the Office of Thrift Supervision, John M. Reich, told a Senate panel, “I make no apology for that e-mail whatsoever.”

“I am by nature a humble person, I am a casual person and an informal person,” Mr. Reich said. “It is not at all unusual that I address people … by their first name, particularly if I am 10 years older than they are.”

Mr. Reich led the Office of Thrift Supervision, WaMu’s main regulator, in the years before the bank failed. He is testifying before the Permanent Subcommittee on Investigations as it examines the lax oversight that allowed WaMu to flood the financial system with billions of dollars of toxic mortgage investments.

The subcommittee is charging that regulators failed to act for years despite knowing the bank had problems, then argued among themselves as it collapsed.

In response to Mr. Reich’s comment, the committee chairman, Senator Carl Levin, Democrat of Michigan, said that “it is not only feeble enforcement, it is pitiful enforcement.” He said earlier that the agency “was more of a spectator on the sidelines, a watchdog with no bite, noting problems and making recommendations, but not trying to correct the flaws and failures it saw.”

Mr. Reich said he regretted some decisions, but would not apologize despite lawmakers’ invitations.

Mr. Levin said the chummy relationships with bank executives made the Office of Thrift Supervision a toothless regulator. In an e-mail message released as part of the investigation, Mr. Reich referred to Mr. Killenger, as “my largest constituent assetwise.”

Mr. Reich said he picked up the term “constituent” during 12 years working on Capitol Hill. He said it is not “intended to reflect any sort of sinister or inappropriate relationship” with a regulated bank. Fees from WaMu made up about 15 percent of the agency’s budget — more than any other single bank.

Mr. Reich bristled at the panel’s statements that WaMu was the biggest financial failure in American history, saying, “In fact, the largest failure in U.S. history was Citi.”

Citi received government support of $45 billion. Executives arranged for WaMu to be purchased by JPMorgan Chase for $1.89 billion.

A Treasury Department watchdog earlier told the panel that regulators trusted the executives of Washington Mutual to correct risks at the bank but did little to force a change — leading to the bank’s failure.

The inspector general of the Treasury Eric Thorson said that officials at the Office of Thrift Supervision “accepted assurances from WaMu management and its board of directors that problems would be resolved,” but “O.T.S. did not ensure that WaMu corrected those weaknesses.”
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Source: http://www.nytimes.com/2010/04/17/business/17crisis.html?src=busln

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