The Office of Thrift Supervision has put a top executive on leave pending an investigation into capital injections that were allegedly backdated. The OTS, the primary regulator for banking companies that are classified as thrifts and their holding companies, said that Senior Deputy Director and COO Scott Polakoff, who was serving as acting director, has been put on leave. The leave is "pending a review by the Department of the Treasury of the OTS's August 2008 actions related to post-period capital contributions," it said in a release late Thursday. The regulator named Deputy Director and Chief Counsel John Bowman as acting director, effective immediately. Thrifts or savings and loan institutions are retail financial companies that typically offer basic banking activities as well as mortgage lending. Thrifts do not have capital markets or investment banking arm like their larger, more diverse financial counterparts. The regulator came under pressure last August after it was learned that the OTS had allowed now-defunct mortgage lender IndyMac, which had a thrift subsidiary, to backdate a May $18 million capital infusion to the end of the first quarter. IndyMac failed in July. The OTS removed Darrel Dochow, the agency's official in charge of the Western region, from that position and he later resigned from the agency. Treasury Department Inspector General Eric Thorson wrote in a letter to members of Congress that the OTS had also allowed other thrifts to record capital infusions in an earlier period than when they were received.
By law, thrifts must have at least 65% of their lending in mortgages and other consumer loans -- making them particularly vulnerable to the housing downturn. As the credit crisis swelled banks' capital levels have become a hot button subject for investors and regulators, who feared that many firms were not sufficiently capitalized given the potential loan and securities losses soaking in their portfolios. The $700 billion federal banking bailout approved by Congress in October came just months after IndyMac collapsed and weeks after Washington Mutual in September became the largest thrift to fail in U.S. history. The Seattle company was acquired by JPMorgan Chase ( JPM) for $1.9 billion. The trouble was not limited to thrifts. Citigroup ( C) and Wells Fargo ( WFC) battled over capital-strained Wachovia with Wells acquiring the Charlotte, N.C.-based bank at the end of last year. In addition, PNC Financial Services ( PNC) acquired National City on Dec. 31. But now regulators are looking at banks' tangible capital ratios as a more precise way of measuring bank capital levels. Citi, for one, was forced to arrange the conversion of a portion of the governments $45 billion preferred stake to common shares to boost its TCE.