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Banks weren’t the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The U.S. government was handing out millions of dollars to bank regulators, rewarding “superior” work even as an avalanche of risky mortgages helped create the meltdown.

Former Merrill Lynch executive John Thain speaks at a 2008 news conference in New York. Thain came under fire after news that Merrill moved up its year-end bonuses, paying them just before the company sought more government aid. (Bebeto Matthews/Associated Press)

The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 per cent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.

During the 2003-06 boom, the three agencies that supervise most U.S. banks — the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency — gave out at least $19 million in bonuses, records show.

Nearly all that money was spent recognizing “superior” performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.

After the meltdown, the government’s internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough:

“OTS did not react in a timely and forceful manner to certain repeated indications of problems,” the Treasury Department’s inspector general said of the thrift supervision office following the $2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.

“OCC did not issue a formal enforcement action in a timely manner and was not aggressive enough in the supervision of ANB in light of the bank’s rapid growth,” the inspector general said of the currency comptroller after the $2.1 billion failure of ANB Financial National Association

“In retrospect, a stronger supervisory response at earlier examinations may have been prudent,” FDIC’s inspector general concluded following the $1.8 billion collapse of New Frontier Bank.

“OTS examiners did not identify or sufficiently address the core weaknesses that ultimately caused the thrift to fail until it was too late,” Treasury’s inspector general said regarding IndyMac, which in 2008 became one of the largest bank failures in history. “They believed their supervision was adequate. We disagree.”

“OCC’s supervision of Omni National Bank was inadequate, Treasury investigators concluded following Omni’s $956 million failure.”