Office of Thrift Supervision

The Office of Thrift Supervision (OTS) was a United States federal agency under the Department of the Treasury that chartered, supervised, and regulated all federally chartered and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency (that was faulted for its role in the savings and loan crisis). Like other U.S. federal bank regulators, it was paid by the banks it regulated. The OTS was initially seen as an aggressive regulator, but was later lax. Declining revenues and staff led the OTS to market itself to companies as a lax regulator in order to get revenue.

Office of Thrift Supervision
Agency overview
Formed9 August 1989
Preceding agency
Dissolved21 July 2011
Superseding agency
HeadquartersWashington, D.C.
Employees1024 (2007)
Annual budgetUS$250 million (2008)
Agency executive
  • John E. Bowman, Acting Director
Parent agencyDepartment of the Treasury

The OTS also expanded its oversight to companies that were not banks. Some of the companies that failed under OTS supervision during the financial crisis of 2007–2010 include American International Group (AIG), Washington Mutual, and IndyMac.

The OTS was implicated in a backdating scandal regarding the balance sheet of IndyMac. Reform proposals from Henry Paulson, President Barack Obama, and the U.S. Congress proposed to merge the OTS with the Office of the Comptroller of the Currency. Section 312 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated merger of OTS with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors, and the Consumer Financial Protection Bureau (CFPB) as of 21 July 2011. The OTS ceased to exist on 19 October 2011.


OTS did not receive a government budget; instead, they were funded by the banks they regulate, like other U.S. federal bank regulators.[1] Other regulatory agencies like the OTS include the Office of the Comptroller of the Currency, the FDIC, the Federal Reserve System, and the National Credit Union Administration.

If banks regulated by OTS fail, revenues for the agency decline; conversely, if the OTS regulates more banks, revenues increase.[1]


The OTS was established in 1989 in response to the savings and loan crisis. On television, President George H. W. Bush said,

never again will America allow any insured institution operate without enough money

and "trashed" the predecessor Federal Home Loan Bank Board; soon thereafter, the sign was changed to the "Office of Thrift Supervision".[2] Savings and Loan legislation—the Financial Institutions Reform, Recovery and Enforcement Act of 1989—"abolished",[3] or renamed, the independent Federal Home Loan Bank Board to the Office of Thrift Supervision and placed it under Department of the Treasury supervision.[4] On 22 March 1990, in a setback to the George H. W. Bush Administration, Federal District Judge Royce C. Lamberth ruled that OTS appointments of the former director and acting director, M. Danny Wall and Salvatore R. Martoche, had been unconstitutional because they were not nominated by the President and confirmed by the Senate.[5]

In 1992, under Director T. Timothy Ryan, the OTS aggressively shut down troubled Savings and Loan (S&L) outfits, and was criticized by the industry and industry lawyers for not allowing some S&Ls that might survive to have a chance.[6] Ryan contrasted the OTS cleanup of the S&L industry to the former situation.

We're the regulator of the industry. We aren't the trade association and we're not its promoter. That's how they got into trouble the last time. They had a regulator who was a promoter.

S&Ls were "dropping like flies" and this presented problems for OTS staff—declining revenues led to a declining staff.[1] The OTS responded by marketing itself at industry meetings.[1] At one such meeting, federal regulators were "announcing a campaign to ease regulation" and they were in a photo-op over a stack of the federal regulations—holding garden shears signaling their intent to cut through them.[1] OTS Director James Gilleran brought a chainsaw.[1] "Companies got the message."[7] In 1998, OTS approved 43 charters, with more than a third going to non-banks.[8] In 2004 Gilleran said "our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion".[9] The OTS "adopted an aggressively deregulatory stance toward the mortgage lenders it regulated... [and] allowed the reserves the banks held as a buffer against losses to dwindle to a historic low."[9]

In March 2007, a Government Accountability Office report noted that "In contrast [to the Federal Reserve], a substantial minority of the firms OTS oversees—especially the large, complex ones—have primary businesses other than those traditionally engaged in by thrifts, such as insurance, securities, or commercial activities."[10]

Section 312 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated merger of OTS with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, and the Consumer Financial Protection Bureau (CFPB) as of 21 July 2011. The OTS ceased to exist on 19 October 2011.

The end of the OTS prompted at least one thrift, Thrivent Financial for Lutherans, to convert to a credit union rather than meet the "strict" insurance regulations set forth in the Dodd-Frank Act.[11]



OTS supervised holding companies as well as thrift institutions. This resulted in OTS providing consolidated supervision for such well-known firms as General Electric (GE), AIG, Inc., Ameriprise Financial, American Express, Morgan Stanley, and Merrill Lynch. OTS's consolidated supervision program for GE, AIG Inc., and Ameriprise was recognized as "equivalent" by the European Union—allowing these firms to operate their financial businesses in the EU without forming an EU holding company and submitting to supervision in the EU.

The OTS was the primary regulator of Federal Savings Associations (sometimes referred to as Federal thrifts). Federal savings associations include both Federal Savings Banks and Federal Savings and Loans. The OTS was also responsible for supervising Savings and Loan Holding Companies (SLHCs) and some state-chartered institutions.

Institutions regulated

The following are some of the larger institutions that were regulated by the OTS:


In March 2008, OTS Director John M. Reich stated that the Savings and Loan industry remained vibrant due to the effectiveness of regulators.[16] Reich blamed Indymac's 11 July 2008 failure on $1.3bn of withdrawals in the fortnight following concerns raised from Senator Chuck Schumer over the bank's solvency.[17][18] Schumer faulted the OTS.[19] The failure of IndyMac Bank was the fourth largest bank failure in United States history.[20] Prior to IndyMac's failure on 11 July 2008, the bank had come to rely heavily on higher cost, less stable, brokered deposits, as well as secured borrowings, to fund its operations. The bank had focused on stated income and other aggressively underwritten loans in areas with rapidly escalating home prices, particularly in California and Florida.[21]

On 21 July 2008, Mr. Reich described "interference with the regulatory process by reporting and disseminating speculation about the condition of financial institutions, thereby undermining public confidence in those institutions and causing serious harm" as a contributor to the failure of IndyMac as well as Fannie Mae, Freddie Mac and Lehman Brothers.[22]

On 22 December 2008, Mr. Reich removed his agency's western director, Darrel W. Dochow for allowing IndyMac to backdate a capital infusion of $18 million from its parent company so that the bank would appear "well capitalized" in its 10-Q for the period ending 31 March 2008. According to a source with knowledge of the incident, at another point Mr. Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets, overruling the advice of others in the agency.[23] Mr. Dochow played a central role in the savings-and-loan scandal of the 1980s, overriding a recommendation by federal bank examiners in San Francisco to seize Lincoln Savings, the giant savings and loan owned by Charles Keating. Mr. Reich called the backdating irregularity "a relatively small factor" in the collapse of IndyMac.[24]

On 12 February 2009, Mr. Reich resigned, announcing he would step down 27 February.[25]

On 26 February 2009, the Treasury Department's inspector general released a report citing laxity at the OTS under Reich for adding significantly to the $10.7 billion in FDIC losses from the IndyMac failure, as well as the estimated $270 million in losses suffered by uninsured depositors. The report concluded that, under the law, OTS should have taken Prompt Corrective Action against IndyMac in May 2008.[26] Commenting on the report, Inspector General Eric Thorson dismissed Reich's claim that Senator Schumer's letters caused the failure. Marla Freedman, the assistant inspector general for audit, detailed a pattern of excess risk-taking and abuse of the lending process at IndyMac and the OTS's consistent and concurrent failure to act. Mr. Reich said in a letter to the inspector general that he agreed with the agency's filings.[27]

On 27 February 2009, Mr. Reich stepped down amidst the continuing audit of backdating at IndyMac and four other institutions.[28] Scott Polakoff, OTS senior deputy director and chief operating officer, hired under Mr. Reich, became acting director on his departure.

On 26 March 2009, Polakoff was removed and placed on leave by United States Secretary of the Treasury Timothy Geithner, amidst an announced further review and investigation of the backdating scandal by the U.S. Treasury's Inspector General.[29]


The OTS was pressed by the Senate Banking Committee to admit partial blame for the failure of American International Group (AIG).[30] In a congressional hearing, after Donald Kohn described how there was no regulator for AIG Financial Products or the company overall, Scott Polakoff interrupted.[31][32] Polakoff stated that it was time for the OTS to take some responsibility because they had been "deemed an acceptable regulator for both US domestic and international operations".[33]

Due to OTS regulation of AIG, the Mayfair-based (London, UK) AIG Financial Products division was not subject to Financial Services Authority regulation.[34] OTS regulation allowed France's Commission Bancaire to grant approval for a Paris-based banking subsidiary, Banque AIG. The Mayfair-based AIG Financial Products division then opened under a system which allowed branch openings in member countries after one EU regulator's approval.

That OTS was the primary regulator of AIG has been described as "nonsense"[35] and compared to "the super-heavyweight of the world going up against the 65 lb, 13-year-old, class weakling".[36] AIG operates in 130 countries.[37] The OTS had a small division that monitored derivatives including the credit default swaps at AIG.[38] After a dispute with Goldman Sachs in 2007 over the value of the credit default swaps,[39] the OTS did not initiate formal enforcement action, but "periodically raised concerns with AIG managers".[38] Other sources of concern were the three credit rating agencies and AIG's auditor PricewaterhouseCoopers.[39] In March 2008, after AIG disclosed valuation problems, the OTS sent a letter to AIG requesting a "corrective action plan" in 30 days.[38] The division overseeing AIG Financial Products was "quietly disbanded" and AIG missed their deadline.[38]


In addition to being headquartered in Washington D.C., OTS had regional offices in Atlanta, Dallas, Jersey City, San Francisco, and Chicago.

See also



  1. The Watchmen. p. 11.
  2. The Watchmen. p. 10–11.
  3. "Records of the Federal Home Loan Bank Board (FHLBB)". National Archives and Records Administration. Retrieved 22 November 2009.
  4. Cash, Nathaniel C. (9 March 1990). "Nominee Seen for Top Savings Regulator". The New York Times. Retrieved 27 November 2009.
  5. Cash, Nathaniel C. (22 March 1990). "Setback for Bailout and Savings Regulator". The New York Times. Retrieved 22 November 2009.
  6. Leslie Wayne (21 January 1992). "Thrift Office's Eager Terminator". The New York Times. Retrieved 22 November 2009.
  7. The Watchmen. p. 12.
  8. Silverman, Gary (22 March 1999). "Commentary: It's a Wonderful Loophole". BusinessWeek. Archived from the original on 23 November 2012. Retrieved 6 January 2010.
  9. Appelbaum, Binyamin; Nakashima, Ellen (23 November 2008). "Banking Regulator Played Advocate Over Enforcer: Agency Let Lenders Grow Out of Control, Then Fail". Washington Post.
  10. Government Accountability Office (15 March 2007). Financial Market Regulation: Agencies Engaged in Consolidated Supervision Can Strengthen Performance Measurement and Collaboration (Report). GAO-07-154. Retrieved 25 June 2019.
  11. Rubenstein, Jim (5 April 2012). "Thrivent Financial Bank Still on Track to Become Credit Union". Credit Union Times. Retrieved 19 June 2019.
  12. Westbrook, Jesse; Vekshin, Alison (31 March 2008). "Paulson Plan Endorses Fed's Enhanced Market Authority". Bloomberg. Archived from the original on 21 January 2013. Retrieved 7 January 2010.
  13. Labaton, Stephen (17 June 2009). "Obama Sought a Wide Range of Views on Finance Rules". The New York Times.
  14. "20 ways US House, Senate financial reforms differ". Thomson Reuters. Reuters. 6 January 2010. Retrieved 7 January 2010.
  15. Wagner, Daniel; Jacobs, Stevenson (23 May 2010). "New financial rules might not prevent next crisis". Associated Press.
  16. Stephen LaBaton (22 November 2009). "Obstacles Seen as Treasury Proposes New Financial Rules". The New York Times. Retrieved 22 November 2009.
  17. James Daley (14 July 2008). "US Treasury credit deal to shore up Freddie and Fannie". The Independent. London. Retrieved 27 November 2009.
  18. "Schumer: Don't blame me for IndyMac failure". 13 July 2008. Retrieved 26 November 2011.
  19. Andrew Clark (16 July 2008). "US economy: Investigators target home loans at failed California bank". The Guardian. London. Retrieved 22 November 2009.
  20. Shalal-Esa, Andrea (25 September 2008). "FACTBOX: Top ten U.S. bank failures". Thomson Reuters. Reuters. Retrieved 26 September 2008.
  21. "FDIC Board Approves Letter of Intent to Sell IndyMac Federal". 2 January 2009. Retrieved 26 November 2011.
  22. "Remarks to American Bankers Association Summer Meeting" (PDF). 21 July 2008. Archived from the original (PDF) on 5 October 2011. Retrieved 26 November 2011.
  23. Appelbaum, Binyamin; Nakashima, Ellen (23 December 2008). "Regulator Let IndyMac Bank Falsify Report". Washington Post. Retrieved 26 November 2011.
  24. Andrews, Edmund L. (22 December 2008). "Irregularity Uncovered at IndyMac". The New York Times. Retrieved 26 November 2011.
  25. Switzky, Bryant Ruiz (12 February 2009). "OTS director Reich resigns". Washington Business Journal. American City Business Journals. Retrieved 26 November 2011.
  26. Treasury Office of Inspector General (26 February 2009). SAFETY AND SOUNDNESS: Material Loss Review of IndyMac Bank, FSB (PDF) (Report). OIG-09-032. Archived (PDF) from the original on 19 April 2009.
  27. Heisel, William (26 February 2009). "Federal regulators ignored problems at IndyMac, report finds". Los Angeles Times. Archived from the original on 3 March 2009.
  28. Crittenden, Michael R. (27 February 2009). "Regulators Missed Woes at IndyMac". The Wall Street Journal. Retrieved 26 November 2011.
  29. Chadbourn, Margaret (27 March 2009). "Treasury's Watchdog Reviewing Backdating of Capital at Thrifts". Bloomberg. Archived from the original on 8 December 2012. Retrieved 26 November 2011.
  30. Mary Williams Walsh (5 March 2009). "Senators Ask Who Got Money From A.I.G." The New York Times. Retrieved 27 November 2009.
  31. The Watchmen. p. 8.
  32. Christopher J. Dodd (Majority statements), Donald Kohn (witness), Scott M. Polakoff (witness), Eric Dinallo (witness) (5 March 2009). American International Group: Examining what went wrong, government intervention, and implications for future regulation. 538 Dirksen Senate Office Building, room 538: United States Senate Committee on Banking, Housing, and Urban Affairs. Event occurs at 77:08 minutes in. Retrieved 13 December 2009.
  33. The Watchmen. p. 8–9.
  34. Richard Northedge (15 March 2009). "AIG London unit not regulated by FSA". The Independent. Retrieved 27 November 2009.
  35. Lex team (26 May 2009). "Office of Thrift Supervision". Financial Times. Retrieved 21 November 2009.
  36. The Watchmen. p. 10
  37. Dennis, Brady (6 March 2009). "Senators Call AIG 'Lost Cause'". Washington Post. Retrieved 27 November 2009.
  38. Jeff Gerth (10 November 2008). "Was AIG Watchdog Not Up To The Job?". ProPublica, MSN Money. Archived from the original on 15 December 2008. Retrieved 28 November 2009.
  39. AIG E-Mail Trail Chronicles Crisis – Washington Post: Messages Sent Between Executives Track Insurance Giant's Colossal Collapse 30 December 2009. Washington Post (On CBS News).
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