- The Washington Times - Friday, March 19, 2010

Wall Street financial firms weren’t the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The government also was handing out millions of dollars to bank regulators, rewarding “superior” work even as an avalanche of risky mortgages helped create the meltdown.

The payments, detailed in payroll data released to the Associated Press under the Freedom of Information Act, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom.

Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.


During the 2003-06 boom, the three agencies that supervise most U.S. banks - the Federal Deposit Insurance Corp. (FDIC), the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) - gave out at least $19 million in bonuses, records show.

Nearly all that money was spent recognizing “superior” performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.

After the meltdown, the government’s internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough:

c “OTS did not react in a timely and forceful manner to certain repeated indications of problems,” the Treasury Department’s inspector general said of the thrift supervision office after the $2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.

c “OCC did not issue a formal enforcement action in a timely manner and was not aggressive enough in the supervision of ANB in light of the bank’s rapid growth,” the inspector general said of the agency after the $2.1 billion failure of ANB Financial National Association.

c “In retrospect, a stronger supervisory response at earlier examinations may have been prudent,” FDIC’s inspector general concluded after the $1.8 billion collapse of New Frontier Bank.

Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it’s impossible to determine how many auditors got bonuses despite working on major banks that failed.

Regulators said it was unfair to use those missteps, seen with the benefit of hindsight, to suggest any of the bonuses were improper.

“These are meant to motivate employees, have them work hard,” OTS spokesman William Ruberry said. “The economy has taken a downturn in recent years. I’m not sure that negates the hard work or good ideas of our employees.”

At the OCC, spokesman Kevin Mukri noted that the national banks his agencies regulate generally fared better than others during the financial crisis.

“In making compensation decisions, the OCC is mindful of the need to recruit and retain the very best people, and our merit system is aimed at accomplishing that,” Mr. Mukri said. “We also believe it is important to reward those who worked so hard and showed such great professionalism throughout the crisis.”

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