CHICAGO – Anxious customers lined up this week outside various branches of the California-based bank IndyMac. They were rushing to retrieve personal savings as federal regulators seized control of the failed financial institution.
Laden with high-risk portfolios composed largely of no-document or low-document loans, IndyMac folded last week. The company is yet another victim of the national default crisis that has struck the United States economy in the last 12 months.
The U.S. Department of Treasury’s Office of Thrift Supervision handed control of the bank to the Federal Deposit Insurance Corp. (FDIC) last Friday because it didn’t think IndyMac could meet depositor demand. The bank reopened this Monday under the name IndyMac Federal Bank FSB.
The scene outside some IndyMac branches (33 in total) grew tense at times. On Wednesday, police were called to maintain order at a location in Encino, Calif. as customers who had tried for two consecutives days to withdraw their money grew impatient and attempted to jump the line.
The FDIC insures all deposits up to $100,000. According to a report by the Associated Press, most depositors were given access to up to $100,000 in their accounts and 50 percent for any additional amounts. Certificates were issued for any money depositors could not immediately withdraw.
The IndyMac failure, which includes an estimated $32 billion in assets, is poised to be among the largest bank failures in American history and certainly the largest in two decades.
Chicago was the setting for the largest bank failure on record. In the spring of 1984, rumors began to swirl that the nation’s seventh-largest bank at the time – Continental Illinois National Bank & Trust Company – was in trouble. The financial institution was heavily invested in oil and gas ventures.
When the bank’s assets started shrinking in a shaky energy market, retail customers began to withdraw their money. Unease grew to a full-blown bank run that ended in the collapse of Continental Illinois and the loss of $40 billion in assets.
Will the IndyMac failure spurn consumers to relocate their savings to a hole in the backyard? Thus far, the fallout at IndyMac doesn’t seem to have prompted panic at other banks. FDIC Chairman Sheila Bair urged calm on Wednesday and said banks overall are “safe and sound”.
Still, with 90 banks on the FDIC’s list of “troubled banks,” additional bank failures are not unlikely.
By MEGAN O’NEIL
Staff Writer
megan@midwestbusiness.com
