Friday, July 11, 2008
Second Largest Bank EVER To Fail Did So Today--Entirely Separate from Fan & Fred
Regulators Seize Mortgage Lender
By Louis Story, The New York Times
Banking regulators seized IndyMac Bancorp, one of the country’s largest mortgage lenders, on Friday evening. [July 11, 2008]
The bank, a star in the subprime era, is the second largest ever to fail and the first major bank to shut its doors since the savings and loan crisis of the 1980s.
The bank collapse came after a frenzied week as IndyMac’s executives tried — and failed — to bolster the bank’s financial footing. The bank, based in Pasadena, Calif., said on Monday that it had stopped making new loans and announced layoffs of more than half of its 7,200 workers. But IndyMac’s customers — afraid their savings might disappear — stampeded tellers, demanding their money back.
The run on the bank came after a critical letter about the bank’s future written by Senator Charles Schumer, Democrat of New York. Federal regulators said on Friday that Mr. Schumer’s letter had pushed IndyMac into collapse, causing the bank run and scaring away potential acquirers.
“The senator made comments in his letter questioning the viability of the institution,” John M. Reich, director of the Office of Thrift Supervision, said on a phone call with reporters. “When a member of the United States Senate makes such a statement, it frightens depositors.”
In the days after Mr. Schumer’s letter was released on June 26, IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, the government said. Before Mr. Schumer’s letter, the bank had been receiving net inflows of money from depositors, Mr. Reich said.
Mr. Schumer, who has been critical of bank regulators for months, released a statement, in turn, criticizing Mr. Reich’s agency.
“If O.T.S. 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,” he said.
For all the write-downs and bad news on Wall Street over the last year, few regional and local bank have shut their doors. The Federal Deposit Insurance Corporation listed just 76 troubled banks in its report in April. The handful that have failed have been a fraction of the size of IndyMac. IndyMac held $30 billion in deposits as of late March, according to the government release.
“It’s the biggest failure in 24 years,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. “You haven’t had a lot of failures of that size, yet.”
IndyMac’s collapse was unrelated to the market worries about Fannie Mae and Freddie Mac, the big mortgage finance companies.
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