http://www.ots.treas.gov/docs/7/778029.html

The Office of Thrift Supervision (OTS) today closed the $32 billion IndyMac Bank, headquartered in Pasadena, California, and transferred operations to the Federal Deposit Insurance Corporation (FDIC).

A successor institution, IndyMac Federal Bank, FSB, will open for business on Monday and be run by the FDIC. Depositors will have no access to banking services online and by telephone this weekend, but will continue to have access to their funds this weekend by ATM, through other debit card transactions and by writing checks. Online banking and phone banking services will be available again on Monday.

The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said. “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.

IndyMac had been in a precarious financial situation that was caused, in part, by an unprecedented stress in the residential real estate market, combined with the evaporation of the non-agency secondary mortgage market in August of 2007. The OTS 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.

Runs on banks are not good signs. It's interesting to see that the FDIC forced the close before the bank had trouble meeting withdrawals.

And so it begin's.

never heard of them

IndyMac (http://en.wikipedia.org/wiki/IndyMac_Bank) was founded to buy up mortgages that neither FannieMae (http://en.wikipedia.org/wiki/Federal_National_Mortgage_Association) nor FreddyMac (http://en.wikipedia.org/wiki/Federal_Home_Loan_Mortgage_Corporation) would purchase (these are called "non conforming" in the industry, and the reason might be as simple as the loan value is too high - above $417k for example). Very few banks keep hold of mortgages that they write. Instead, they sell them on the "secondary market (http://en.wikipedia.org/wiki/Secondary_mortgage_market)." For about 70% of the loans in the US, that secondary market consists of FannieMae and FreddieMac - both of which are in the news because they too are about to go tits up. Most of the remaining mortgages that can't be sold to FannieMae and FreddieMac were sold to financial houses on wall street to bundle up into things called CDO (now called REMIC and RE-REMIC because no one is willing to purchase CDOs anymore). The wall street players took a lot of business away from the 2 GSEs shrinking their share of the secondary market to about 50% from about 2003 to late 2006 when the cracks in wall street's business started showing (the indictments of 2 execs of Bear Stearns are related to their actions in funds in this market space). The meltdown in the financial market was combined by hiding defective loans into large pools and selling the sausagized remains as "bonds" that the bond rating agencies falsely gave high ratings (because the issuers paid for the high ratings - not honest ratings).
US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies. Source (http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4322440.ece)
Sounds OK so far, until you get to this bit: The capital injection would also see both lenders granted permission to use the Federal Reserve’s discount window - a short-term emergency funding source. Kaching! Depending on who you listen to, FNMA and FHMLC need either zero new capital (administration appointees claim this) to $70Billion in new capital (most wall street analysts). Being able to borrow from the discount window was something that Bear Stearns was not permitted to do (they were an investment bank (http://en.wikipedia.org/wiki/Investment_bank)) but JPMorgan could borrow from the discount window - that's why they had to be sold to a commercial bank (http://en.wikipedia.org/wiki/Commercial_bank).

If you think that the run on IndyMac was caused by Schumer, then I think you have carefully forgotten just what sort of festering financial mess CountryWide (http://en.wikipedia.org/wiki/Countrywide_Financial) has been in. The rot didn't start with those letters, the rot started years ago, and OTS was a willing participant in trying to hide the fiasco until the next president's administration took charge. That way, the apologists could say "it was fine until that other guy took over."

IndyMac was engaging in the very same misbehaviors that caused the S&L meltdown 2 decades ago, and I am not only shocked but infuriated that the OTS was sitting on their ass doing jack shit about it. Schumer's letter only lifted the rock and exposed the wiggling malfeasance that was going on.

One of the words to watch out for are "brokered deposits." These are large CD deposits that banks pay far above market rates to get, just so that they appear to have sufficient financial reserves. Because these are broken up into lots of little $100k CD deposits, they are all covered by FDIC insurance, however these depositors behave very differently from normal depositors so that all the actuarial assumptions that go into insurance and regulations end up being generally useless with brokered deposits. (a) In general An insured depository institution that is not well capitalized may not accept funds obtained, directly or indirectly, by or through any deposit broker for deposit into 1 or more deposit accounts.

(b) Renewals and rollovers treated as acceptance of funds Any renewal of an account in any troubled institution and any rollover of any amount on deposit in any such account shall be treated as an acceptance of funds by such troubled institution for purposes of subsection (a) of this section. Source (http://www4.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831---f000-.html)
Some FAQ about Brokered deposits (http://www.epfc.com/issuing_cd/faqs.html)

"I am writing to you out of concern for the safety-and-soundness risks posed by IndyMac," Schumer told FDIC Chairman Sheila Bair; John Reich, director of the thrift agency; Richard Rosenfeld, chairman of the Federal Housing Finance Board; and Dean Schultz, president of the San Francisco FHLB. "The regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac or minimize the damage should such a failure occur."

He asked what steps the agencies are taking.

Schumer asked, for example, whether the FDIC has considered ordering IndyMac to reduce its reliance on brokered deposits, sold by securities firms to customers outside of a bank's local area, which can carry higher interest rates but also can be riskier than traditional deposit accounts because they may not fall within the federal insurance limit. Brokered deposits make up more than 37 percent of IndyMac's total deposits, according to Schumer's letter. Source (http://biz.yahoo.com/ap/080626/indymac_schumer.html)
In response, OTS told Schumer to STFU (http://latimesblogs.latimes.com/money_co/2008/07/sen-charles-e-s.html) and the article in the first post was another way for OTS to blame the messenger for their own dereliction of duty. The OTS, it appears, believes that keeping the customer in the dark is their only fiduciary duty and that the public is too gullible to know the truth. This (http://www.amazon.com/Inside-Job-Looting-Americas-Savings/dp/006098600X/) book will infuriate you because you can see the same malfeasance repeated yet again.

The Office of Thrift Supervision was created to liquidate the Savings and Loan "banks" after the S&L meltdown in the 1980s. They now regulate some types of lenders, of which IndyMac was one. These aren't real banks, as real banks are regulated by the Office of the Comptroller of the Currency (http://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currency).

Much of the excessive deregulation that led to the current finacial crisis in the US had been penned by ex-Senator Gramm. This very same crook became a lobbyist for the banks that are now begging to be bailed out and is a close personal friend of and financial advisor to presidential candidate McCain. So one can only conclude that electing McCain would lead to more financial disasters like the current one.

Much of the excessive deregulation that led to the current finacial crisis in the US had been penned by ex-Senator Gramm. This very same crook became a lobbyist for the banks that are now begging to be bailed out and is a close personal friend of and financial advisor to presidential candidate McCain. So one can only conclude that electing McCain would lead to more financial disasters like the current one.

I could be mistaken, but I would swear I saw a report the other night on the news where Gramm was mentioned as being the number 2 now at the bank he went to work for, as a lobbyist. From his involvement in writing legislation to balance the nation's budget, to legislation that opened the doors for the mortgage crisis, this man sure demonstrated the gamut an elected official can run from honorable to corrupt.

excessive deregulation

Key word IMHO!

Great post Smidget. mostly over my lil' head i'll admit but informative and educational non the less.