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.

Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it's impossible to determine how many auditors got bonuses despite working on major banks that failed.

Regulators say it's unfair to use those missteps, seen with the benefit of hindsight, to suggest any of the bonuses was improper.

"These are meant to motivate employees, have them work hard," thrift office spokesman William Ruberry said. "The economy has taken a downturn in recent years. I'm not sure that negates the hard work or good ideas of our employees."

At the OCC, spokesman Kevin Mukri noted that the national banks his agencies regulate generally fared better than others during the financial crisis.

"In making compensation decisions, the OCC is mindful of the need to recruit and retain the very best people, and our merit system is aimed at accomplishing that," Mukri said. "We also believe it is important to reward those who worked so hard and showed such great professionalism throughout the crisis."

David Barr, a spokesman for the FDIC, which handed out two-thirds of the bonuses during the boom, had no comment.

In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.

The bonus data released to the AP does not say specifically why each person received a bonus. For instance, one person in the OCC's financial examining division got a $41,000 recruitment bonus on top of a $179,000 salary in 2005. In 2006, the last boom year for banks buying risky mortgages, the FDIC gave out more than 2,000 bonuses to financial examiners.

In 2008, the year the market collapsed, OTS gave 96 financial examiners bonuses of up to $3,000 for exceptional work.

At the three regulatory agencies, the value of the bonuses stayed roughly constant from before the banking boom, through the good times and into the collapse. While the total pales in comparison with the billions spent on Wall Street perks, the justification was similar.

Trader Bradley Silverman works on the floor of the New York Stock Exchange in late 2008. Investor anger over lavish Wall Street bonuses was a major issue throughout 2009. (Richard Drew/Associated Press)

"Bonuses were determined based upon the performance and the retention of the people," said John Thain, the former CEO of Merrill Lynch, the troubled brokerage firm that paid out $3.6 billion in bonuses just before selling itself to Bank of America. "And there is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing."

To be sure, Washington policymakers eased regulations and encouraged banks to write risky loans. Families bought homes they couldn't afford. Brokers found them mortgages. Bankers quickly snatched them up, never asking whether they could be repaid. And rating agencies certified it all as safe.

But regulators were part of the problem, and the bonuses were a symptom, said Ellen Seidman, a research fellow at the New America Foundation think-tank and the head of OTS from 1997 to 2001.

"Is it probably the case that the standards for evaluating how well people in the regulatory system were doing were not as high as they should have been? Probably," Seidman said.

But the bigger question, she said, is why government regulators thought they were doing so well: "Why did the system fool itself?"