IndyMac closed by OTS after Schumer's letter triggers 'deposit run'

New York, July 11 - Indymac Bank was shut by the Office of Thrift Supervision on Friday after $1.3 billion was withdrawn from accounts in a "deposit run" in the wake of a letter from Sen. Charles Schumer, D-N.Y., that expressed concerns about the institutions viability.

IndyMac's operations were transferred to the Federal Deposit Insurance Corp. which will run a successor institution, IndyMac Federal Bank, FSB, that was is scheduled to open for business on Monday.

The OTS said it acted after determining that IndyMac Bank was unlikely to be able to meet continued depositors' demands in the normal course of business and was therefore in an unsafe and unsound condition.

Pasadena, Calif.-based IndyMac had been in trouble for some time - the OTS described its financial situation as "precarious" - but the regulator blamed Schumer's letter for making its problems worse.

"This institution failed today due to a liquidity crisis," OTS director John Reich said in a news release. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."

IndyMac is the largest OTS-regulated thrift ever to fail and, according to FDIC data, the second largest financial institution to close in U.S. history.

The OTS said IndyMac had suffered from the unprecedented stress in the residential real estate market, combined with the evaporation of the non-agency secondary mortgage market in August 2007.

The OTS added that it had significant concerns with the bank's funding strategy, had directed appropriate changes and was finalizing a new set of enforcement actions to address its numerous problems.

As a result of an OTS examination that began in January 2008, the OTS deemed IndyMac to be in troubled condition. An overwhelming majority of problem institutions are able to successfully modify their operations and business plans, work closely with their regulator and eventually return to a healthy condition, according to the OTS.

IndyMac had reacted to market conditions and OTS concerns in November 2007 by changing its operations and business plan to build a foundation for recovery. IndyMac was actively seeking to arrange a significant capital infusion or find a buyer, the OTS said.

The recent release of the senator's letter undermined the public confidence essential for a financial institution and took away the time IndyMac needed to pursue a recovery, according to the regulator.

"With no viable alternatives and insufficient liquidity, IndyMac was placed into receivership," the OTS said.

The OTS named the FDIC as conservator of the newly chartered successor institution and will transfer most of the assets and liabilities of IndyMac to the new thrift.

Depositors will not be able to access banking services online and by telephone over the weekend, but will be able to use ATMs, debit cards and write checks. Online banking and phone banking services will resume Monday.

Depositors' accounts are insured by the FDIC's Deposit Insurance Fund up to the statutory limits.

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