OTS transferred operation of IndyMac Bank to the Federal Deposit Insurance Corp., which was created in 1933 after a wave of bank failures during the Great Depression. According to OTS Director John Reich, "This institution failed...due to a liquidity crisis."
IndyMac Bank’s successor, IndyMac Federal Bank FSB, has opened and will be managed by the FDIC. FDIC Chairwoman Sheila C. Bair called the closure of IndyMac a "non-event" for customers because the FDIC guarantees checking and savings accounts up to $100,000 per depositor. "IndyMac-insured deposits are absolutely safe," she said.
As of March 31, IndyMac had total deposits of $19.06 billion, officials said. However, about 10,000 depositors have accounts in excess of the insured limit, for a total of $1 billion in potentially uninsured funds. Customers with uninsured deposits can make appointments to file a claim with the FDIC beginning on Monday. The federal agency said it would pay unsecured depositors an advance equal to half of the uninsured amount.
Bair said the FDIC will cover all insured deposits, and then try to recover its costs by selling IndyMac's assets. The goal, she said, is to try to maximize assets and sell the company. "We'd like to have it sold off in 90 days," she said. IndyMac spokesman Evan Wagner said he could not comment because the company is now controlled by the FDIC. The FDIC said that beginning Monday, IndyMac's 33 bank branches, including four locations in the Long Beach area, will resume normal operating hours and will continue to offer full banking services and be staffed by its regular employees. But Michael W. Perry, IndyMac's chairman and chief executive officer, is out of a job. The new bank will be run by John F. Bovenzi, the FDIC's chief operating officer.
The run on IndyMac deposits started on June 26, after the release of a letter to the OTS and the FDIC from Sen. Charles Schumer, D-N.Y., expressing concerns about IndyMac's viability. IndyMac was trying to arrange a significant capital infusion or find a buyer but the release of the senator's letter undermined the public confidence and took away the time needed to pursue a recovery, the OTS said.
Regulators determined IndyMac Bank was unlikely to be able to meet continued demands by depositors and is "therefore in an unsafe and unsound condition," the OTS said in announcing its action. IndyMac had been in a precarious financial situation that was caused, in part, by an unprecedented stress in the residential real estate market and the sudden evaporation of the secondary mortgage market in August 2007, the OTS said. Its failure makes IndyMac the biggest casualty of the mortgage market meltdown.
Assemblyman Ted Lieu, D-El Segundo, who is spearheading a package of mortgage reforms in the Legislature, said the bank's failure was further evidence of the need for increased regulation. In a letter sent to shareholders on Monday, Perry said the company had been working with investment bankers to raise additional capital but had not been successful. He said efforts would continue but "we don't expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets," he wrote. IndyMac specialized in making and selling what’s known as Alt-A mortgage loans, a category of loans to consumers more credit worthy than sub-prime borrowers but typically without the complete documentation of income or assets necessary to receive a prime-rate loan. IndyMac was formed in 1985 by Countrywide® founders Angelo R. Mozilo and David Loeb. It became a stand-alone concern a decade later.
The last FDIC-insured failure in California was the Southern Pacific Bank in Torrance on Feb. 7, 2003. The fear, the hassle, the long lines in the hot sun, and now the wait. Many IndyMac customers who are moving their money to another bank won't be able to access all of their funds for more than week. By law, the other banks must make IndyMac cashier's check deposits up to $5,000 available for withdrawal in one business day. But any amount over that can be held up to nine business days.
The Los Angeles Times reported Thursday that one woman who tried to deposit her IndyMac check at a Washington Mutual Inc. branch in South Pasadena, Calif., said a manager told her the new policy was not to accept IndyMac checks. If the customer insisted, she said she was told, it could take eight weeks or more to access the full amount. But Olivia Riley, spokeswoman for Washington Mutual, said the bank is accepting IndyMac checks, but declined to discuss the specifics of its check-clearing policies.
"We have a check-hold policy that takes into consideration a variety of factors, for example, the amount of the check and the state where the check originated," she said. Other national banks contacted by The Associated Press said they're operating within regulatory requirements regarding deposits of IndyMac checks.
Wachovia Corporation® and Citibank® also aren't changing their deposit policies regarding IndyMac checks. "Citibank welcomes IndyMac customers," said spokesman Robert Julavits. William Ruberry, a spokesman for the Federal Office of Thrift Supervision, which regulates the banks, said the agency has received a handful reports about IndyMac customers having problems transferring their money to other banks.
"Our position is that other institutions should honor IndyMac checks, and we're looking into the situation," Ruberry said. Most customers were given immediate access of up to $100,000 in their accounts and 50 percent of any money over that, according to the Federal Deposit Insurance Corp., which is now operating IndyMac. Depositors with joint accounts or retirement accounts could immediately withdraw greater sums.
But the real question is does the collapse of IndyMac Bank mean banks are at risk to fail? The answer depends entirely on who you ask.
FDIC Chairwoman Sheila Bair stated that, “Although five banks have failed this year, that number is tiny compared to the height of the savings and loan crisis, when 534 banks closed in 1987.
"The chance that your bank is going to fail is very remote. The overwhelming majority of banks are quite healthy in this country," Bair told NPR. "Even if your bank does fail, your insured deposits will be there for you."
Along those same lines, the American Bankers Association said that banks are well positioned to handle the economic downturn with a buffer of $1.48 trillion, including reserves and cash, to hold as operating capital.
While Banking Analyst for Standard and Poor's Stuart Plesser said, “IndyMac was in an unusual situation because it had an ‘extremely risky’ exposure to assets. Standard & Poor's still has a negative outlook for banking stocks, which have not performed well: Various bank indexes are down more than 50 percent from a year ago, he said.
