Banking Regulators in the US were paid massive bonuses even as they allowed the shadow-banking system, over-leveraging, and un-backed credit-default-swap sales to mushroom, leading to the financial crisis of 2007 - 09. From the CBC [h/t Ms. Eclectic]:
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.
... 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?"