Role in AIG Controversy
In a May 2006 congressional hearing, Reich addressed the issue of OTS's regulating of international financial holding companies through its special office of Complex and International Organizations. Reich said he was working to ensure that the financial companies under his watch wouldn't be burdened by added "regulatory scrutiny" in Europe. Among other things, he said the OTS designation meant U.S. companies operating in Europe could avoid testing "the qualifications of key personnel" and requirements to keep more cash and assets in reserve to cushion against losses.
In a March 2007 report on financial regulation, the Government Accountability Office looked at the OTS and found "a disparity between the size of the agency and the diverse firms it oversees." The report noted a lack of specialized skills at the OTS, which had just one insurance specialist to oversee several insurers such as AIG.
In March 2008, Acting Director Polakoff admitted told a U.S. Senate panel that the Office of Thrift Supervision “fell short” in its oversight of American International Group Inc. Polakoff admitted that the regulator “did not sufficiently assess the susceptibility of highly illiquid, complex instruments,” to ratings downgrades and "should have directed the company to stop originating credit-default swap products before December 2005.” In response to a Senator Mel Martinez's remark that OTS might be "the regulator that we've been looking for", Polakoff acknowledged that OTS was "the one".
Read more about this topic: John M. Reich
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