ERNST & YOUNG, one of the four largest US accounting firms, has agreed to pay $125 million (£65 million) to settle claims arising from its audits of a failed Illinois savings bank, American regulators revealed on Christmas Eve.

The firm will pay $40 million to the US Federal Deposit Insurance Corporation (FDIC) and is finalising an $85 million settlement with the Treasury Department’s Office of Thrift Supervision (OTS), which will be transferred to the FDIC.

The OTS closed down Superior Bank, which had assets of about $2.3 billion, in July 2001. The bank was owned by the multibillionaire Pritzker family and a New York developer.

Investigators for the Treasury, the FDIC and Congress blamed the bank’s collapse on risky business strategies, but they also accused Ernst & Young of negligence and concealing the bank’s true financial condition.

The FDIC said that Ernst & Young had not admitted any liability as part of the settlement. An FDIC spokesman said that some of the settlement would eventually reach uninsured depositors who lost money in Superior’s collapse.

Ernst & Young said that its decision to settle underscored a commitment to work with the regulators and to make sure the firm had the strongest policies and procedures to serve its clients and the public interest.

The New York-based firm said it had already changed the way that it audits savings and loan associations. “We are voluntarily taking the extra step of implementing these changes throughout our bank audit practice,” a spokesman said.

The new measures allocate more technical resources, boost training and strengthen client acceptance and reacceptance procedures.

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