Ernst & Young LLP has agreed to pay $125 million in restitution to federal bank regulators, which settles all charges relating to the firm's audits of the failed Superior Bank FSB.Without admitting any liability for its audits, E&Y agreed to pay the Office of Thrift Supervision $85 million and the Federal Deposit Insurance Corp. $40 million. These funds will be used to cover losses by Superior's receivership. The FDIC had accused E&Y of allowing the Hinsdale, Ill., thrift to use "incorrect" accounting for its subprime securitizations and residuals, which inflated Superior's assets and earnings. But federal courts ruled that the FDIC did not have standing to sue the accounting firm. "The decision to reach these settlements underscores our commitment to work cooperatively with the regulators," E&Y spokesman Charlie Perkins said. As part of the settlement, E&Y agreed to provide annual reports to the OTS on its audits of all OTS-supervised institutions and to adhere to stringent auditing standards, including rotation of lead audit partners. "We already have implemented changes to our audits of savings associations that comply with the OTS consent order, and we are voluntarily taking the extra step of implementing these changes throughout our bank audit practice," Mr. Perkins said.

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