The Second S&L Scandal


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Published: January 21, 2009

How OTS allowed reckless and unfair lending to fleece homeowners and cripple the nation's savings and loan industry.

Although the Office of Thrift Supervision was created as a result of the first savings & loan crisis, history repeated itself as the OTS ignored bad lending practices and allowed thrifts to self-destruct.

  • OTS permitted WaMu, IndyMac and other thrifts to engage in increasingly risky lending practices that harmed borrowers, undermined the institutions' own financial health, and ran up enormous costs that have landed in the taxpayer's lap.
  • OTS was slow to act as the financial health of the banks it oversaw deteriorated. It failed to take action that would have significantly reduced the economic fallout from these bank failures.
  • The agency hid from investors and the public the seriousness of thrifts' financial problems.  In some instances, the OTS allowed banks to falsify financial results to mask poor results that would have raised alarms sooner.

The damage caused by OTS's failures is enormous. In 2008, five thrifts with assets totaling $354 billion collapsed. Seven other thrifts holding assets totaling another $350 billion have been sold or are entangled in their parent companies' bankruptcies.

OTS was not the only regulator to be slow in responding.  The OCC and the Federal Reserve also share responsibility for the meltdown of the housing market that has battered the economy—but the OCC and the Fed are better positioned to perform the oversight needed to restore credibility and trust in the nation's banking system.  

What should be done?  CRL recommends that OTS be eliminated as a government agency and that its functions be folded into other federal banking regulators.

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