Banking regulator Dochow out over backdating at IndyMac

The banking regulator in charge of overseeing two of this year's largest failed banks — Washington Mutual and IndyMac Bancorp — was removed from his job Monday.

In what could be the first head to roll at a government regulatory agency from the financial turmoil, the Office of Thrift Supervision removed Darrel Dochow from his job as director of its western region.

In his review of IndyMac's failure, the Treasury Department's inspector general, Eric Thorson, found that Dochow allowed the bank to show it was in better financial health in the first quarter of this year than it really was. IndyMac was seized just four months later, on July 11, by the Federal Deposit Insurance Corp., which has since incurred $8.9 billion in losses related to the bank.

The inspector general found the bank had backdated a capital infusion after reviewing papers from IndyMac's auditor Ernst & Young. The backdating allowed IndyMac to show its capital ratio above 10%. A ratio below that means banks lose the "well-capitalized" status and need an FDIC waiver to accept deposits from brokers.

Thorson says Dochow knew that IndyMac couldn't meet its capital requirements and allowed it to record a capital infusion six weeks before it occurred. The IndyMac holding company made a $50 million capital contribution on May 9, of which $18 million was recorded on March 31, 2008. Dochow didn't return a call seeking comment.

"The impact of Western Director Dochow's approval to record the capital infusion in the quarter ending March 31, was that IndyMac was able to maintain its 'well-capitalized' status," Thorson said in a preliminary report. Thorson said he found that the OTS had also allowed other thrifts to record capital before it had been received. The OTS wouldn't identify the other thrifts.

Sen. Charles Grassley, R-Iowa, said he was worried that the findings weren't isolated. "What does that mean about the real financial condition of other banks?"

John Reich, OTS director, said E&Y had determined that the adjustments weren't material. Reich also says the issue uncovered by Thorson was a relatively small factor in IndyMac's failure.