FDIC's Bair offers no comfort to uninsured IndyMac depositors
The head of the Federal Deposit Insurance Corp. delivered some bad news personally to uninsured depositors who lost money last year when IndyMac Bank crashed and burned, saying an act of Congress is their only hope for recovering their funds.
“When a bank fails, we have to do what’s least-cost to our deposit insurance fund,” FDIC Chairman Sheila Bair said during a public appearance Wednesday in Los Angeles.
That’s not the answer the IndyMac depositors wanted to hear, of course. But it’s the answer they have been getting since the bank, which had specialized in stated-income mortgages and high-yield CDs, collapsed in July 2008. That left about 10,000 customers of the Pasadena-based savings and loan with losses of $270 million on deposits that exceeded FDIC insurance limits.
Congress later last year raised federal insurance coverage from $100,000 per depositor to $250,000 and loosened the requirements for trust accounts so that anyone could be listed as a beneficiary, not just immediate family members.
One of the contentions of the uninsured IndyMac depositors is that bank employees misinformed them about who could be a beneficiary of accounts, increasing their losses when the bank failed. Why not make the changes retroactive to their cases? they ask.
The uninsured depositors’ anger was intensified earlier this year by a report from the Treasury Department's Office of the Inspector General, which excoriated the Office of Thrift Supervision, IndyMac’s chief regulator, for ignoring warning signs that the bank’s loan portfolio was in trouble. Had the regulators done a better job, IndyMac's loan losses would have been limited, the depositors say.
Bair’s comments came during a question-and-answer session after she spoke to a Town Hall Los Angeles meeting at the Regency Club in Westwood.
“In light of the OIG report, how can you justify not giving us our money back?” one of the IndyMac depositors asked. “We were misled by bank officials. We set up accounts as we were told to by the bank, and they were wrong.”
Bair said her hands were tied by the laws governing the deposit insurance fund, which already is strained by losses from a surge in bank failures.
“I know you feel it wasn’t fair,” she told the depositors, a group of whom attended the session. The situation “troubles me greatly,” Bair said, but added, “It’s something that Congress has to fix.”
The bank’s failure cost the FDIC nearly $11 billion. The remains of IndyMac were taken over by private equity investors who now are operating it as OneWest Bank.
The FDIC has repaid 50 cents of every uninsured dollar to IndyMac depositors. Last year the agency had held out hope that the uninsured depositors might get more money as the bank’s assets were liquidated, but Bair said Wednesday that it was unlikely there would be any further payments.
-- E. Scott Reckard
Photo: Sheila Bair. Credit: Toby Canham / Getty Images