WASHINGTON — The Office of Thrift Supervision was more focused on blocking the Federal Deposit Insurance Corp. from reining in Washington Mutual Inc. than it was in regulating the thrift company itself, congressional investigators and two watchdogs said Thursday.

A day before officials representing both agencies are scheduled to answer for the biggest failure in U.S. history, Sen. Carl Levin released a scathing report on Wamu's oversight, asserting that the OTS viewed the Seattle company as a "constituent," repeatedly ignored its own examiners' findings about Wamu's risky strategy and responded to the FDIC's more aggressive tone by fighting a turf war.

"Bank regulators are supposed to be our first line of defense against unsafe and unsound banking practices, but OTS didn't defend us," the Michigan Democrat told reporters ahead of Friday's hearing of the Permanent Subcommittee on Investigations. "Instead, although OTS repeatedly identified serious problems with Wamu, it failed to act based on the problems that it itself saw. These agencies, in particular the OTS, are supposed to be like a fire inspector to protect us … but instead stood and watched idly while the incendiary threat grew higher and higher."

Ahead of the hearing, Levin released a raft of documents, including internal FDIC and OTS memos that documented their arguments during Wamu's final days. Earlier this week, Levin also released internal Wamu documents detailing the company's risky lending practices and held a contentious hearing with former Wamu Chief Executive Kerry Killinger.

Similarly critical findings were released Thursday by the inspectors general of the FDIC and Treasury Department; a joint report concluded both regulators could have done more. "OTS's examinations of Wamu identified concerns with Wamu's high-risk lending strategy, including repeat findings concerning Wamu's single-family loan underwriting, management weaknesses and inadequate internal controls," the watchdog agencies said. "However, OTS's supervision did not adequately ensure that Wamu corrected those problems early enough to prevent a failure of the institution."

While the scrutiny has put both regulators in the hot seat, Levin's criticism was more squarely directed at the OTS. He noted the FDIC's numerous attempts to downgrade Wamu's regulatory rating.

According to his report, the FDIC was so frustrated by the OTS' refusal to downgrade the company's Camels rating in the summer of 2008 — months before its September failure — that the FDIC informed Wamu directly that it would lower the rating. (Regulators usually agree on ratings, but the FDIC is allowed to assign its own rating for deposit insurance assessment and other purposes.)

In response, then-OTS Director John Reich complained about FDIC Chairman Sheila Bair to his deputy, Scott Polakoff, writing in a Sept. 10, 2008, e-mail, "I cannot believe the continuing audacity of this woman."

Levin also pointed to repeated OTS efforts to block FDIC examiners from participating in Wamu's oversight. In a 2006 e-mail, FDIC Regional Director George Doerr told a senior official at the agency, "Please read info about OTS denying us space and access to information. The situation has gone from bad to worse."

Levin said that the OTS "did not allow the FDIC examiners to access critical … documents, refused to permit the FDIC to participate on a file review" and "continually rebuffed the FDIC's more critical view of the bank's condition."

"The OTS fought a turf war at the same time that its largest financial institution it oversaw was losing value, losing capital and losing deposits," Levin said.

Still, while Levin said the FDIC was "significantly less" to blame for the poor oversight, it "should have acted more vigorously."

Levin noted claims by the FDIC that current requirements bar it from getting involved with institutions overseen by other regulators that still appear healthy, but Levin said agency officials should have pressed the issue. "They were rejected and they were repulsed when they made requests of the OTS. That's something they should have taken to a higher level and insisted upon," he said. "They had the right to do that."

The joint IG report said that the "FDIC has enforcement powers to act when a primary regulator, such as OTS, does not take action," but "it did not use those powers for Wamu in 2008 because of the significant procedural steps necessary to invoke such action."

The report said the FDIC was hampered by an interagency agreement dictating how and when the FDIC's backup oversight authority is triggered. "We concluded that the interagency agreement did not provide FDIC with the access to information that it needed to assess Wamu's risk to the" Deposit Insurance Fund, said the inspectors general, who said that the FDIC revisit the agreement.

Levin also pointed to evidence that the OTS saw its relationship with Wamu — whose exam fees contributed a significant chunk of the OTS budget — as "collaborative."

He cited a May 2007 e-mail from Reich that stated, "Kerry Killinger, the CEO of Washington Mutual … will be in town Friday and wants to have a lunch meeting. He's my largest constituent, asset-wise."

Levin said that was proof the agency was not looking at Wamu objectively. "A constituent of OTS is not Wamu. OTS is supposed to work for us, the people, the taxpayers of the United States," Levin said.

Referring to statements by Killinger at his hearing earlier in the week that Wamu failed because it was not among the exclusive group of "too big to fail" institutions, Levin said, "The evidence indicates that there is another club that he was very much a member of, and that's OTS thrifts, which were allowed to dodge tough oversight."

Critics have warned for years that OTS was susceptible to capture by a large thrift company like Wamu, and many have suspected it had a too-cozy relationship with the company. As a result, the regulatory reform bills pending in Congress would eliminate the OTS and fold its functions into the Office of the Comptroller of the Currency.

William Ruberry, the OTS spokesman, defended the agency, noting in a statement that it has already adopted the single recommendation made by the IG report — that the agency ensure it uses a system to formally track the status of examiner recommendations.

"It is also important to note that unlike other institutions that failed or were deemed too big to fail, the Wamu closing caused no loss to the Deposit Insurance Fund and no federal assistance borne by taxpayers," he said. (The FDIC sold Wamu's assets and deposits to JPMorgan Chase & Co. in a transaction that cost the government nothing.)