As I’m sure you all already know by now, IndyMac bank was seized by the FDIC yesterday as a run on deposits caused by panic over the failure of the mortgage arm of the company and comments released to the media by Senator Schumer about the bank’s ability to survive.
IndyMac is the largest bank failure to date amidst the subprime induced (but hardly contained) credit crisis. While many will blame Senator Schumer for the bank’s failure, I submit that he was merely the straw. Poor underwriting guidelines, reckless loan programs, and the inability of the bank to make money and securitize mortgages as investor appetite changed quickly were the real culprits. To put the blame on one letter is to minimize the poor decisions and governance of the bank itself.
From Inman News on the collapse:
The FDIC said it will transfer insured deposits and “substantially all the assets” of IndyMac Bank, to a newly created successor, IndyMac Federal Bank, which will be operated by the FDIC.
Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks. Depositors of IndyMac Federal Bank FSB will have no access to online and phone banking services this weekend, but will regain access to them on Monday.
IndyMac was one of the nation’s largest independent mortgage lenders, and had been hard hit by delinquencies and foreclosures. Parent company IndyMac Bancorp Inc. announced Monday that it was no longer considered “well capitalized” by regulators and had stopped making most mortgage loans (see story).
In a statement, OTS Director John Reich said the immediate cause of the closing of IndyMac Bank FSB was a run on deposits that began when a June 26 letter Sen. Charles Schumer, D-N.Y., sent to federal bank regulators voicing concerns about the thrift’s “financial deterioration” was made public. Schumer said IndyMac posed “significant risks to both taxpayers and borrowers” (see story).
In the 11 business days following the public release the letter, Reich said depositors withdrew more than $1.3 billion from their accounts.
“This institution failed today due to a liquidity crisis,” Reich said. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
More IndyMac coverage here, here, here. My original IndyMac article.
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