Treasury watchdog says regulators saw risk at WaMu but were too trusting and failed to act

Treasury watchdog: Lax regulators helped doom WaMu

WASHINGTON — A Treasury Department watchdog is preparing to tell a Senate panel that regulators trusted the executives of Washington Mutual to correct risks at the bank but did little to force a change — leading to the biggest U.S. bank failure.

Treasury Inspector General Eric Thorson says in prepared remarks that officials from the Office of Thrift Supervision “accepted assurances from WaMu management and its Board of Directors that problems would be resolved.”

Thorson says “OTS did not ensure that WaMu corrected those weaknesses.”

Thorson is appearing before a hearing of the Permanent Subcommittee on Investigations. The panel is examining failures of oversight by the OTS and the Federal Deposit Insurance Corp. that contributed to WaMu’s failure.