May 21 (Bloomberg) -- The Office of Thrift Supervision authorized “inappropriate” backdating of capital by six institutions, including IndyMac Bancorp Inc., that led to “misleading financial reporting,” the U.S. Treasury inspector general said in a report.

Oversight failures were “very serious” and included a senior deputy director in August instructing a lender to backdate and a regional director authorizing revised accounting, according to the report today. OTS left unchanged revisions at three unidentified thrifts. Republican Senator Charles Grassley said the actions were “completely unacceptable” and a congressional subcommittee planned an investigation.

It’s “alarming that such high-level OTS officials were not only aware” of two revisions in capital reports, but “directed or authorized” the backdating, Susan Barron, audit director in the Office of Inspector General, said in the report that didn’t identify five of the six lenders. IndyMac’s August revision on capital helped the lender avoid OTS restrictions.

The thrift regulator has become a target for lawmakers as the Obama administration and Congress consider overhauling U.S. financial regulations. Former Treasury Secretary Henry Paulson last year suggested merging OTS, which regulates about 800 thrifts, with the Office of the Comptroller of the Currency, which oversees national banks.

The Treasury report said the agency allowed “misleading financial reporting by the thrifts” and needs to tighten oversight by issuing guidance to OTS examiners laying out steps to prevent backdating of capital contributions.

‘Too Cozy’

“This report paints the disturbing picture of a regulatory agency being much too cozy with the industry it’s supposed to be regulating,” Grassley, the Senate Finance Committee’s top Republican, said in a statement. “The agency needs to make sure this doesn’t happen again and hold the appropriate people accountable.”

The House Financial Services Committee’s panel on oversight planned to investigate the actions, and subcommittee Chairman Dennis Moore, a Kansas Democrat, today asked Bowman in a letter for a report and other documents.

“It is bad enough that executives at the firms cited in the report would think it may be appropriate to backdate capital infusions so their thrift could appear healthier than they really were,” Moore said in a letter. “It is even worse” that OTS “would be complicit in these actions.”

The report showed that Senior Deputy Director Scott Polakoff in August informed a regional office examiner overseeing one of the six unidentified lenders “to instruct the thrift to infuse capital and backdate the capital.”

Polakoff Status

The inspector general notified Treasury Secretary Timothy Geithner of the action on March 17, and Geithner on March 26 removed Polakoff as the agency’s acting director, a position he had held for less than a month.

IndyMac’s revision of its capital injection helped it avoid falling below “well capitalized” status, which would have required the lender to seek a waiver to accept certain risky deposits. The OTS allowed the lender to record $18 million of a $50 million infusion from its holding company May 9, 2008, as first-quarter capital. IndyMac collapsed two months later.

“The agency is committed to continuing to improve and strengthen its processes based on lessons learned from its internal review and the Office of Inspector General,” Acting Director John Bowman wrote May 18 to the inspector general. OTS gave “detailed guidance and communication” to employees and lenders regarding “proper recognition and reporting of capital contributions.”

To contact the reporter on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net.

Last Updated: May 21, 2009 19:32 EDT