Government Seizes Control of IndyMac and its $32 billion in Assets

Government regulators late Friday closed down IndyMac Bancorp., a Pasadena, Calif.-based thrift that was a heavy lender in the alternative mortgage sector for the past few years.

The bank reopened Monday morning as IndyMac Federal Bank, under the control of the Federal Deposit Insurance Corp. (FDIC). The bank, a prolific lender of so-called Alt-A mortgage loans, also counted 10,000 retail customers with deposits of $19 billion at the time it was closed. About $1 billion of the deposits were uninsured.

The Office for Thrift Supervision (OTS) said that the bank’s failure was due to a run on deposits that began June 26. The OTS said that customers withdrew $1.3 billion from the bank over the next 11 days.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said in a statement Friday. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."

“It’s important to remember that the banking industry remains highly capitalized and well prepared for economic weakness,” the American Bankers Association said late Friday in a press release. “As of March, capital in the industry exceeded $1.36 trillion, with an additional $120.9 billion held in reserve as a safeguard against possible losses.  Despite the turmoil in financial markets, banks added $13.5 billion to capital in the first quarter, and 99 percent of banks are currently classified by the regulators as ‘well capitalized,’ the highest possible designation.”

But some analysts said that the IndyMac failure could portend a rapid increase in bank failures in the U.S. The International Herald Tribune reported that as many as 150 banks could fail in the next year. Still a far cry from the more than 1,000 bank failures in the savings and loan crisis of the late 1980s and early 90s, analysts are concerned about what might be coming.

"Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there," said Richard Bove, a banking analyst with Ladenburg Thalmann, told the Herald Tribune.

There has been speculation for months that the FDIC was gearing up for a rash of bank failures ("FDIC Ramping Up for Bank Failures," March 31).

IndyMac was spun-off from troubled mortgage lender Countrywide Financial in 1985, but the two have not had a connection since 1997, in fact competing in some markets since then.