IndyMac, which once employed 10,000, fell prey to a classic run on the bank, and regulators singled out Sen. Charles E. Schumer (D-N.Y.) as having helped to fuel massive withdrawals. On June 26, Schumer said in letters to the FDIC, the OTS and two other federal agencies that IndyMac might have "serious problems" with its loan holdings.I'll be curious to read the bloggers tomorrow and Monday, and what they have to say this. To single out Schumer seems kind of extraordinary, though. Bankruns are herding behaviors, and so it it typical that some piece of information gets latched onto and causes a run, which in a fractional reserve banking environment, will lead to even healthy banks to fail. But, this sounds different, and in fact, if I were a large lender in California, Ohio, Florida, Arizona, or any of the other afflicted areas, I'd be worried right now - not about Schumer, but about continuing foreclosures and massive writeoffs.
"I am concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers," he wrote. The bank "could face a failure if prescriptive measures are not taken quickly."
That public warning prompted depositors to pull $1.3 billion out of accounts between June 27 and Thursday.
"This institution failed today due to a liquidity crisis," John M. Reich, director of the OTS, said at a news conference Friday afternoon. "Although this institution was already in distress, the deposit run pushed IndyMac over the edge."
Schumer said in a statement that the cause of IndyMac's failure was "poor and loose lending practices" that should have been prevented by more active regulation. Later, a Schumer spokesman said: "Mr. Reich, a political appointee, should be spending less time playing politics and more time doing his job."
Saturday, July 12, 2008
IndyMac: Bankrun or not?
Second largest bank failure in history, according to the LA Times story. The suggestion in the article (more than a suggestion actually) is that this was a classic bankrun. IndyMac was teetering on the edge, but some recent proclamations about the bank's trouble had led to a run on the banks assets, pushing it over the edge.
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