IndyMac (IMB) Shut Down Due To Bank Run, FDIC Takes Over

July 11, 2008 7:24 PM EDT
Late Friday, the Office of Thrift Supervision announced that they closed the $32 billion IndyMac Bank (NYSE: IMB) and transferred operations to the Federal Deposit Insurance Corporation (FDIC). 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 Office of Thrift Supervision said 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

Earlier in the week, IndyMac announced that it is no longer "well capitalized" and would not accept new loan applications.

A successor institution, IndyMac Federal Bank, FSB, will open for business on Monday and be run by the FDIC. Depositors will have no access to banking services online and by telephone this weekend, but will continue to have access to their funds this weekend by ATM, through other debit card transactions and by writing checks. Online banking and phone banking services will be available again on Monday.

"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. IndyMac specialized in making and selling so-called Alt-A mortgage loans, a category of loans to consumers more credit worthy than subprime borrowers but typically without the complete documentation of income or assets necessary to receive a prime-rate loan.

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