Sat, July 12, 2008
Correction: IndyMac Is Now Kaput
Well, this is a bit creepy. Earlier today I wrote about American Express' arrangement last year with IndyMac Bankcorp and another lender to let mortgage holders make their monthly payments with credit cards. I made a point of saying that IndyMac was still in business. Oopsie - they were in business yesterday, but not today.
The FDIC announced today that it has closed IndyMac Bank, F.S.B., and taken control as conservator of its assets. During the housing boom, IndyMac specialized in Alt-A mortgages, which were not considered as risky as subprimes, but which usually had loose requirements for documentation of borrowers’ assets and income.
With over $30 billion in assets, IndyMac was one of the largest S&Ls in the country, and the second largest ever to fail. Interestingly, the Office of Thrift Supervision issued a press release blaming the failure of IndyMac on New York Senator Charles Schumer, whose public disparagement of the lender last month prompted depositors to pull over a billion dollars out in 11 days.
The FDIC release also notes that the lender had “about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors.” Presumably these were deposits held in excess of the FDIC insurance limit. According to the press release, these uninsured depositors will receive an advance dividend equal to 50 percent of the uninsured amount. I guess that’s better than nothing, but it sounds like as much as $500 million of deposits could be wiped out, though eventually the FDIC may be able to liquidate the bank’s assets and pay a bit more out. Insured deposits, of course, are OK - the FDIC estimates that this closure will cost the deposit insurance fund $4-8 billion.
This highlights the importance of making sure that your deposits are structured in a way that keeps them within the FDIC insurance limits. As I noted in an earlier post, it is possible under the right conditions to have insured deposits in excess of $100,000 at one bank, but it pays to familiarize yourself with the rules.