IndyMac still facing nervous depositors; Sen. Schumer says he is 'reassured' by Treasury and by the FDIC

Struggling IndyMac Bancorp acknowledged today that it continued to face a larger-than-normal number of depositors looking to pull their funds, after new concerns about the Pasadena lender’s health began to swirl late last week.

"We had continued elevated traffic in the branches today, but by afternoon it was subsiding," said Grove Nichols, IndyMac's director of communications. "Hopefully, the rush is abating."

Meanwhile, Sen. Charles E. Schumer (D-N.Y.), who helped fuel depositors’ concerns about the bank last week, sounded like he was trying to double-back a bit. He told the Associated Press that he had spoken with Treasury Secretary Henry M. Paulson Jr. and with Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., and was "reassured they are on top of the situation."

IndyMac's depositors "should not worry," he added, given the bank’s FDIC insurance.

Loss-ridden IndyMac has been hammered by mortgage loan losses as defaults have surged over the last year. Its troubles have been well known on Wall Street, where its stock has collapsed this year. (The shares edged up 3 cents to close at 65 cents today.)

But worries that the bank could fold were fanned last week after Schumer sent a letter to the FDIC, the Office of Thrift Supervision and the Federal Home Loan Bank of San Francisco, saying he was "concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers."

The letter shocked some Wall Street analysts, who said Schumer was in effect sealing the lender’s fate by raising the prospect of its failure.

As detailed here, IndyMac said Monday that it saw about $100 million of its $19 billion in deposits flow out on Friday and Saturday, as nervous depositors lined up at some of its San Gabriel Valley branches.

Nichols wouldn’t provide figures on the net decline in deposits Monday and Tuesday. "We're not going to update the press on a daily basis on our deposits," he said. Most of the unusual traffic in IndyMac’s branches today was from depositors who were concerned but were reassured after talking to bank employees, he said.

The Times also fielded numerous calls this morning from depositors worried about their IndyMac CDs. Several said they knew their accounts were federally insured, but feared that it would take weeks, months or longer to recover them if the bank shut down.

FDIC officials, however, note that when a bank fails they’re required by law to promptly have checks for insured depositors if another bank doesn't immediately take over the accounts.

From the FDIC website: "It is the FDIC's goal to make deposit insurance payments within one business day of the failure of the insured institution. Typically, a bank that has failed will be closed on a Friday. The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks."

For more from the FDIC, see this Q&A.

For IndyMac's rebuttal to Schumer's letter and to a report Monday on its lending practices, go here.

Photo: Sen. Charles Schumer. Andrew Harrer / Bloomberg News

Comments

[million]

"Several said they knew their accounts were federally insured, but feared that it would take weeks, months or longer to recover them if the bank shut down."

with just one bank failure, sure, the FDIC doesn't take too long to administer deposits... but w/ multiple failures and a crippled FDIC??? expect "months or longer" to become the norm.

[anonymous]

Times to close IndyMac down; let their loans collapse, and let housing prices go back to where they belong in the first place. At the dead minimum their 3,000 employees in Pasadena could clear out of LA and get a taste of their own medicine.

No sense in prolonging the agony- it's going to be a crappy year anyway with the Democrats (Pelosi, Reid, and Obama?) in control. Might as well get the pain over and done with until reality sets back in and some folks realize you don't get "sumpthun for nuthin", no matter how the message is packaged.

[martscan]

It aggravates me that comments of the stripe posted here by 'million' and 'anonymous' could be taken seriously by the unknowing.

When, exactly, were there last multiple bank failures that 'crippled' the FDIC? Given that the writer has never experienced a situation of which he/she speaks concerning banks, these comments are irresponsible and inflammatory...and downright stupid.

With respect to the remarks made by 'anonymous', at the "dead minimum" they rate a 'moronic', possibly an 'imbecilic', on the Stanford-Benet IQ chart.

IMB is a great buy at these prices.

[jdoe]

I agree with 'martscan' 100%. I question the true agenda of Schumer's comment about IndyMac Bank; do you really believe it's for the greater good of the public???

[Patient_Vulture]

"with just one bank failure, sure, the FDIC doesn't take too long to administer deposits... but w/ multiple failures and a crippled FDIC??? expect "months or longer" to become the norm."

----

Well, it was clear in the report that the FDIC is required by LAW to have a check the next business day.

Question is, what happens if this 'Law' is broken?

I happen to have a big CD at Indymac and was thinking of paying the penalty for early withdrawal, but if the FDIC really has to give you a check the next business day, well then, it seems it's not to worry!?!?

[Patient_Vulture]

And enough with the political blame comments....both sides have plenty historical financial messes in their portfolios.

Lets not forget that it was Reagan's deregulation of the Savings and Loans in the '80's that cause the biggest banking collapse since the depression....and it cost the taxpayer billions or even trillions (after interest...since we are still paying it off) to bail out....and now with Bush's promotion of home ownership at all costs....pleazeeee

[Mel]

"...such deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation " Yeah, and FDIC has 1.5% reserves of those accounts covered. In a massive failure FDIC promises are suspect at best. Make some room in your mattress and sleep on it!

[John]

What an idiot this Senator is. People are already nervous about economic conditions, then he writes a letter to regulators asking them to save the bank? What was he thinking? That caused total panic and a run on the bank, which sealed its fate. I'll bet he never does that again.

[Radiowiz]

I never have been a fan of Charles Schumer and now Indymac's blood is on his hands. I was consolidating my investments at Indymac in preparation to buy my soon to be ex-wife out of the family home. Now I have an appointment with the FDIC for next weekend to find out how bad the news is. I was foolish and did not watch for the signs of weakness at Indymac. This is just the tip of the iceburg and I encourage anyone that has over $100,000 in any single institution to break it up now before it is too late.

[Bob]

My bet is that Schumer is helping his NY and offshore Hedge fund buddies who have been short IMB Stock. What better way to push them over the edge than to cause a run on the bank? There should be a law against this type of manipulation. Oh wait, there is. There should be a US stock enforcement agency that is not blind and incompetent. That is what we are lacking.

[jason hill]

New York Times reported that hedge fund managers have a new champion in their effort to keep legally dodging the taxes the rest of us pay: none other than New York Senator Charles Schumer. Now you know who is Schumer's friend and why he caused the bank run on Indymac. He truly support hedge fund and private equity because they truly support him.

http://www.nytimes.com/2007/07/30/washington/30schumer.html?_r=1&oref=slogin

"Large Investor decided to pay a few bucks to a Senator in New York to force the issue."(Prospect Mortgage Backed By Sterling Fund--Private Equity Acquired The Mortgage Branches from Indymac before FDIC takeover)
http://www.housingwire.com/2008/07/03/regulators-to-schumer-weve-got-a-whole-bag-of-shhh-with-your-name-on-it/

"And do remember that there are many investment bankers located in New York, making them pretty influential constituents of Sen. Schumer."
http://www.pasadenastarnews.com/opinions/ci_9783402

"In a Sunday news conference, he said everything in his letter was already known to the public."
If it was already known to the public, what is the reason for his public letter? It is contradict to what he said previouly :"I just bring private message to the public. Do not kill the messanger." What a great liar from time to time!
http://www.cnn.com/2008/POLITICS/07/13/indymac.schumer/?iref=mpstoryview

Same thing he did for FRE and FNM, he forced FRE and FNM to buy $145 billion bad loans last September. So his hedge fund friend could short the stock, then his private equity friend could take huge discount to acquire the properties. So obvious criminal acts, but he is still out law and do whatever to harm the American and benefit himself and his friends.

[Al Tulenko]

It's AGAINST THE LAW to do anything that starts a run on a bank, which Schumer did, prima fascia. Is he above the law just because he's a senator? Democrat or Republican -- everyone should be outraged by the senator's behaviour. If the Democrats voted to expell him from congress then they would at least have a chance to elect another Democrat in November.