End of the Road for IndyMac

In what can be termed as one of the biggest bank collapses in American history, IndyMac Bancorp was seized by Federal regulators in wake of run on the bank by its customers. IndyMac thus joins the list of four other U.S. banks which have failed this year following housing kaput and the credit crisis that has engulfed financial institutions.

California-based IndyMac was founded as Countrywide Mortgage Investment in 1985 as a means of collateralizing Countrywide Financial loans too big to be sold to Freddie Mac and Fannie Mae. In 1997 Countrywide had spun off IndyMac as an independent company.

Federal regulators blamed Senator Charles E. Schumer for the run on the bank. The latter had shot off a letter stating that IndyMac was not in the best of financial health. This message also scared away the potential acquirers.

John M. Reich, director of the Office of Thrift Supervision observed, "The senator made comments in his letter questioning the viability of the institution. When a member of the United States Senate makes such a statement, it frightens depositors."

Based on figures available, Mr. Reich said that prior to the release of Mr. Schumer’s letter, IndyMac customers withdrew an average of $100 million a day from the bank and that the bank had been receiving net inflows of money from depositors,.

IndyMac dealt with of its Alt-A mortgage loans, which go to homeowners with credit that is better than the sub-prime category. It ran into rough weather last year itself when it failed to find a buyer for its mortgage loans.

Adam Compton, co-head of global financial stock research at RCM in San Francisco said, "IndyMac is a company that was pretty much 100 percent invested in mortgage assets, and we're in a bad mortgage market, and it had no capital. It's not complicated." Billing it as one of the biggest banking collapse, Chip MacDonald, a banking lawyer said, "It’s the biggest failure in 24 years. You haven’t had a lot of failures of that size, yet."

Most of IndyMac’s deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC). It also has the authority to operate an institution for two years. However analysts believe that FDIC would try to sell IndyMac much sooner than that.