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Federal regulators on Friday seized IndyMac Bancorp and handed
part of the blame for the largest thrift failure in U.S. history to New
York Senator Charles Schumer.
The Office of Thrift Supervision said in a statement the Federal Deposit Insurance Corp. will take over operations of the institution immediately and IndyMac will reopen on Monday as the IndyMac Federal Bank.
The thrift had grown rapidly in recent years, and much of its business was built on Alt-A single family mortgages, often issued borrowers with weak credit. The thrift's financial position weakened as the secondary market for these loans collapsed, and the bank lost about $900 million since the crisis began. A run on the bank, in which depositors withdrew $1.3 billion, began recently when a letter from Schumer to the OTS and FDIC was made public in which the Democrat voiced concerns about the soundness of IndyMac. The move to support the Pasadena, Calif.-based mortgage lender, which had $32 billion of assets as of March 31, comes due to the latest failure brought on by the global credit crisis. In March, the Federal Reserve brokered the sale of investment bank Bear Stearns Cos. to J.P. Morgan Chase & Co. for about $4 billion. And in Britain, the government nationalized mortgage lender Northern Rock plc, which owes the Bank of England £24 billion ($47.7 billion) after it suffered massive write-downs and a run on deposits. The biggest question about the closure may be what effect it will have on the FDIC, and whether the bank deposit insurer will have the resources to handle a crisis if other lenders fail. The FDIC said in a statement that its initial estimate is the seizure of IndyMac will cost about $4 billion to $8 billion. - Peter Moreira See full story on TheDeal.com Categories Deal Video
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