Indymac Bank officially failed a few minutes ago. The FDIC has taken it over, and will begin liquidating assets on Monday. The failure will cost the FDIC trust fund between $4 and $8 Billion. Sadly, it looks like many depositors will lose a lot of money as well:
At the time of closing, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. The FDIC will begin contacting customers with uninsured deposits to arrange an appointment with an FDIC claims agent by Monday. Customers can contact the FDIC for an appointment using the toll-free number above. The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount.That's an average of $50,000 per uninsured depositor. Keep it under $100,000 people!
The Office of Thrift Supervision (OTS) has blamed the failure of IndyMac on Chuck Schumer's letter at the end of June which caused a run on the bank. The OTC press release doesn't pull any punches:
The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.**Update 2**
“This institution failed today due to a liquidity crisis,” OTS Director John Reich said. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
IndyMac is the largest OTS-regulated thrift ever to fail and, according to FDIC data, the second largest financial institution to close in U.S. history.
IndyMac had been in a precarious financial situation that was caused, in part, by an unprecedented stress in the residential real estate market, combined with the evaporation of the non-agency secondary mortgage market in August of 2007. The OTS had significant concerns with the bank’s funding strategy, had directed appropriate changes and was finalizing a new set of enforcement actions to address its numerous problems.
As a result of an OTS examination that began in January 2008, the OTS deemed IndyMac to be in troubled condition. An overwhelming majority of problem institutions are able to successfully modify their operations and business plans, work closely with their regulator and eventually return to a healthy condition.
IndyMac had reacted to market conditions and OTS concerns in November 2007 by changing its operations and business plan to build a foundation for recovery. IndyMac was actively seeking to arrange a significant capital infusion or find a buyer. The recent release of the senator’s letter undermined the public confidence essential for a financial institution and took away the time IndyMac needed to pursue a recovery.
With no viable alternatives and insufficient liquidity, IndyMac was placed into receivership. The OTS has appointed the FDIC as conservator of the newly chartered successor institution and will transfer most of the assets and liabilities of IndyMac to the new thrift.
"If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today," said Schumer, a Democrat from New York. "OTS should start doing its job to prevent future IndyMacs."