July 12, 2008 in Nation/World

FDIC takes over IndyMac Bank

By Kathy M. Kristof and Andrea Chang Los Angeles Times

PASADENA, Calif. – The federal government took control of Pasadena-based IndyMac Bank on Friday in what regulators called the second-largest bank failure in U.S. history.

Citing a massive run on deposits at the $32 billion bank, regulators shut its main branch three hours early, leaving customers stunned and upset. One woman leaned on the locked doors, pleading with a teller: “Please, please, I want to take out a portion.” All she could do was read a two-page notice taped to the door.

The bank’s 33 branches will be closed over the weekend, but the Federal Deposit Insurance Corp. will reopen the bank on Monday as IndyMac Federal Bank, said the Office of Thrift Supervision, or OTS, in Washington.

Federal authorities said that, based on a preliminary analysis, the takeover of IndyMac would cost the FDIC between $4 billion and $8 billion. Regulators said that all deposits of less than $100,000 were safe and insured by the FDIC.

IndyMac’s failure had been widely expected in recent days, as the bank shuttered offices and laid off employees to cope with huge losses from defaulted mortgages made at the height of the housing boom and nervous depositors who were pulling out $100 million a day. Its stock price plummeted to under $1 as analysts predicted the company’s imminent demise.

IndyMac, which once employed 10,000, fell prey to a classic run on the bank, and regulators singled out Sen. Charles E. Schumer for helping fuel massive withdrawals. On June 26, the New York Democrat said in letters to the FDIC, the OTS and two other federal agencies that IndyMac may have “serious problems” with its loan holdings.

“I am concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers,” he wrote.

That public warning prompted depositors to pull $1.3 billion out of accounts between June 27 and Thursday.

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