Congressional watchdog expands probe of lax Wall Street oversight

By Jonathan Spicer

NEW YORK (Reuters) - A U.S. congressional watchdog said on Tuesday it has formally added three agencies to its investigation into whether government regulators are too soft on the banks they are meant to police.

In March, Reuters exclusively reported that the Government Accountability Office (GAO) was preparing a probe of the U.S. Federal Reserve and other to-be-determined regulators, in response to a request by Democratic U.S. Representatives Maxine Waters and Al Green for it to look into "regulatory capture."

The review, requested last October, is the first by an outside agency into the perception that financial regulators are "captured" by and too deferential toward the bankers they supervise, so that Wall Street benefits at the public's expense.

Lawrance Evans, director of the GAO's financial markets and community investment division, said in an email on Tuesday that the probe would include the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the National Credit Union Administration (NCUA). The GAO will also look back at work by the Office of Thrift Supervision, which merged with the OCC in 2011, and regulates savings and loan institutions.

Evans said the investigation is technically separate from the probe of the Fed, "but it is indeed part of the work we are doing in response to the Waters/Green request."

The FDIC declined to comment. Representatives from the OCC and NCUA were not immediately available to comment.

Perceptions of regulatory capture have dogged the U.S. central bank and other regulators since they failed to head off the 2007-2009 financial crisis that sparked a global recession.

(Reporting by Jonathan Spicer; Editing by Jonathan Oatis)