IndyMac Bank on Friday night became the biggest savings bank to fail in decades and the latest victim of the credit crisis as regulators closed down the troubled mortgage lender.
The closure came after it was no longer able to meet continued demands by customers for their deposits. Regulators said the bank was in an ??unsafe and unsound condition?.
Regulators said the California-based bank, with assets of $32bn, is the second largest US financial institution to be closed down, ranking only behind the $40bn Continental Illinois National Bank & Trust Company, which closed in 1984.
The Office of Thrift Supervision (OTS), the bank??s main regulator, said ?the immediate cause? of the closing was the deposit run that began and continued following the release of a letter from Charles Schumer, the New York senator, expressing concerns about the bank??s viability.
IndyMac was seeking to arrange a capital infusion or find a buyer, but the letter ??undermined the public confidence essential for a financial institution and took away the time IndyMac needed to pursue a recovery,? OTS said.
In the 11 days after the release of the letter, which was dated June 26, depositors withdrew more than $1.3bn from their accounts, with about $100m withdrawn every day. ??This institution failed today due to a liquidity crisis,? John Reich, director of the OTS, said.
IndyMac had been in a precarious financial situation caused in part by stress in the residential real estate market, regulators said. But Mr Reich said: ?We??ll never know whether IndyMac would have survived if not for the deposit run. IndyMac was a troubled institution, but the deposit run pushed it over the edge.??
The bank??s operations have been transferred to the Federal Deposit Insurance Corporation (FDIC), which insures deposits in banks and thrift institutions for up to $100,000 per depositor and has been named conservator. It will transfer insured deposits and assets to a successor bank and will open for business on Monday.
According to data from the FDIC, resolution of IndyMac is expected to be among the most expensive rescues of its insured institutions, costing an estimated $4bn-$8bn.
