In a development reminiscent of the Great Depression, IndyMac Bank was closed on Friday by the federal government and taken over by the Federal Deposit Insurance Corp. (FDIC) after customers, worried by a letter by Senator Chuck Schumer (D-N.Y.) pointing out the bank's problems, took out more than $1.3 billion in an 11-day period, according to news reports.
The failure of IndyMac, a former affiliate of Countrywide Financial that had become one of the country's 10 largest mortgage lenders (as measured by volume) represents one more punch to the battered housing industry. Builders, financially strapped homeowners, and others affected by the slump have spent the summer getting slammed by plunging housing prices, weakening economic news, and a seemingly never-ending discussion regarding the much needed housing bill.
While the bank, now IndyMac Federal Bank and managed by the FDIC as conservator, reopened for business today (Monday), customers now are really taking no chances with their savings. Hundreds of IndyMac depositors are lining up at the company's branches in California to withdraw their money.
The FDIC insures deposits up to $100,000 and IRA accounts up to $250,000, but many customers have much more money than that in IndyMac accounts. According to the FDIC, the bank held approximately $1 billion in "potentially uninsured deposits" when it was closed on Friday. Overall, IndyMac held total assets of $32 billion and total deposits of $19 billion as of March 31. It is the first FDIC-insured failure in California since 2003 and is expected to cost the FDIC $4 billion to $8 billion.
Unfortunately for builders, buyers, and taxpayers, economists and others are worried that IndyMac will turn out to be only the first of many banks to collapse, dragged down by bad mortgages and defaults on construction loans. "Failed banks are a lagging indicator, not a leading indicator. So you will see more troubled, more failed banks this year," William Isaac, chairman of the FDIC in the early 1980s, told the New York Times.
For more information on IndyMac's closing, visit www.fdic.gov/bank/individual/failed/IndyMac.html/.
Alison Rice is senior editor, online, for BUILDER magazine.