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