By Dan Margolies and Rachelle Younglai
WASHINGTON (Reuters) - The Federal Deposit Insurance Corp needs timely access to information on the large banks whose deposits it insures, a watchdog said on Friday.
The recommendation comes after battles between regulators led to lax enforcement at the now-defunct bank Washington Mutual.
In the summer of 2008, before the giant mortgage lender collapsed, the thrift's regulators were squabbling over its financial condition, according to a report released by the Senate subcommittee on investigations.
The Office of Thrift Supervision, Washington Mutual's primary regulator, insisted on giving it a higher quality rating than the FDIC, which insured its deposits and was its backup regulator, the panel found.
The FDIC and OTS had an interagency agreement designed in part to avoid duplicative examinations. That agreement "appeared to drive a wedge between the OTS and FDIC, as attempts by FDIC to review information at WaMu were seen as an affront to the capabilities of OTS examiners," FDIC Inspector General Jon Rymer said in prepared remarks to the panel.
Rymer said the FDIC must have sufficient and timely access to information at all large insured depository banks and that it may not be in the FDIC's best interest to place too much reliance on the bank's primary regulator to assess risk to the deposit insurance fund.
The collapse of Washington Mutual, which had more than $300 billion in assets and $188 billion in deposits, was the largest bank failure in U.S. history. The bank's operations were sold to JPMorgan Chase & Co for the bargain price of $1.9 billion.
At a hearing on Friday to examine the role of bank regulators in the recent financial crisis, the U.S. Treasury Department's inspector general said OTS identified core weaknesses that led to the demise of Washington Mutual but failed to ensure the thrift corrected those weaknesses.
"We have found that time and again, the regulators for which we have oversight, the Office of Thrift Supervision (OTS) and the Office of Comptroller of the Currency (OCC), frequently identified the early warning signs...that could have at least minimized, if not prevented, the losses associated with the financial institutions' failure but did not take sufficient corrective action soon enough to do so," the inspector general, Eric Thorson, said in his prepared testimony.
The OTS was Washington Mutual's principal regulator and derived up to 15 percent of its budget from fees paid by the thrift.
In addition to Thorson and Rymer, the Senate panel will take testimony Friday from FDIC Chairman Sheila Bair, OTS acting director John Bowman, former OTS director John Reich and other OTS and FDIC officials.
(Reporting by Dan Margolies and Rachelle Younglai, editing by Dave Zimmerman)