Indymac Bank Taken Over by the FDIC
Jillayne Schlicke on 07 11, 2008
The second largest bank failure in the history of the U.S. means about 1 billion in lost deposits held by 10,000 customers as reported by CNN Money. Accordingly, the Indymac website has a new look. The LA Times has pictures of customers lining up outside the bank, looking inside and here’s a picture of employees loading up their car with brown cardboard boxes.
Just before their demise, Indymac was offering high rates for their Certificates of Deposit. The LA Times asks an interesting question: “Should a money-losing financial institution be permitted to pay well-above-market deposit rates under the protective umbrella of federal deposit insurance? For a six-month CD with a $5,000 minimum deposit, IndyMac’s website [on Wednesday, July 9th] was offering an annualized yield of 4.1% as an online “special.”
I wonder what will happen to the severance packages offered to the 3800 workers who lost their job this past Monday?
I wonder which banks (federal or state chartered) are offering high, high rates on deposits today?
About the Author: Jillayne Schlicke
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Jillayne, do you know how many local employees lost their jobs at IndyMac?
Hi Rhonda,
No word yet in the mainstream media about local Seattle area employees. I imagine that many will still be at the bank branches on Monday. The bank didn’t close, it’s just being taken over by the FDIC.
People need to understand that there are no free lunches in this world! When a bank offers a rate on its CDs that is markedly higher than other banks, that is in indication that the bank may be having serious problems attracting deposits and capital! Rather than lusting after the higher rate on their money, people should put their money elsewhere.
Hi Michael,
I completely agree with you. Some are blaming Senator Schumer for the bank run. IMO, that didn’t bring Indymac down, it was the bad loans.
Perhaps the Senator saved the FDIC a few billion by sounding the alarm.
What happens when the FDIC runs out of money?????????
Those with multiple accounts under $100,000 are probably screwed. During the S & L mess I had a friend with three accounts each under $100,000 that totaled $230,000. She was reimbursed a total of $100,000. Those at the S & L assured her all the money was insured. There was another S & L across the street. She lobbied Congress to no avail.
Hi John,
Why anyone would have more than 100K in any one bank these days is beyond my comprehension.
In other news, Schumer says, “Don’t blame me.”
“Schumer argued that the “breadth and depth” of the problems at IndyMac were “apparent for years, and they accelerated in the last six months.” But OTS, he said, “was asleep at the switch and allowed things to happen without restraint.”
From CNN:
http://www.cnn.com/2008/POLITICS/07/13/indymac.schumer/index.html
They aren’t supposed to cover multiple accounts, unless the ownership is different. I’ve heard in the past that they have.
Jillayne, some people have more than $100,000 in one bank because they have too much money!
This is interesting: http://online.wsj.com/article/SB121599747071249831.html?mod=googlenews_wsj
Apparently our state legislators aren’t the only ones who do stupid things. Per the article, Senator Schumer basically started the run on IndyMac. This is the first I’ve heard of this, so I don’t know how accurate it is. But something had to start the run.
Schumer did the FDIC a favor. By outing Indymac, he probably saved the insurance fund some money.
Toward the end, Indy was offering very high deposit rates, trying desperately to attract capital…..knowing perhaps that the FDIC would be having to cut the check for those CDs.
In other news, It was announced today that Indymac is being investigated by the FBI for mortgage fraud:
http://www.cnn.com/2008/US/07/16/fbi.indymac/index.html
That assumes regulators are powerless to stop that type of behavior.
Panic rarely results in better results than dealing with something in an orderly fashion.
BTW, I wouldn’t assume the criminal investigation is completely unrelated to simply trying to build confidence in the system. The “perp walk” they did of the Bear Sterns executives was completely unnecessary, except that it was part of the plan to rebuild confidence.
“Panic rarely results in better results than dealing with something in an orderly fashion.”
I saw a heart wrenching story on the news of a man who only received $100,000 of his $265,000 life savings. The man had obviously “worked hard for his money” and was elderly and in retirement years.
Had he been the first to panic and run to the bank and get his money back, he personally would have been better off. So “better results” for whom, is the question?