IndyMac Reopens Under Restrictions

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IndyMac Federal Bank FSB opened its doors on Monday, just days after a severe liquidity crisis forced federal regulators to take over the Pasadena-based bank.

The swift collapse of the bank the second largest in U.S. history has fueled concern over the well-being of the country’s anemic financial sector.

The Federal Deposit Insurance Corp. took control of the IndyMac Bancorp Inc.’s 33 branches on Friday after a run on the bank left it unable to meet depositors’ demands. Since then, officials have been working to reassure nervous customers and prepare to find buyers for the bank.

The collapse of one of the country’s largest mortgage lenders left depositors nervous at a time when both the Federal Reserve and the White House are taking steps to bail out troubled mortgage finance companies Fannie Mae and Freddie Mac. To add to depositors’ worries, Wall Street analysts including Ladenburg Thalmann’s Richard Bove said over the weekend that well over 100 more banks could fail by the end of next year if the economy does not begin to rebound.

FDIC Chairman Sheila Blair on Sunday tried to calm depositors’ fears over the possibility of additional bank failures. Blair released a statement criticizing “inaccurate and inflammatory reporting” on IndyMac’s collapse that she said “could well cause needless, unnecessary worry and angst among bank depositors throughout the country.”

“The overwhelming majority of banks in this country are safe and sound,” Blair said. “The chance that your own bank will be taken over by the FDIC is extremely remote. And if that does happen, you will continue to have virtually uninterrupted access to your insured deposits.”

The FDIC insures all deposits up to $100,000 and most retirement accounts up to $250,000.

IndyMac has more than $19 billion in deposits and according to the FDIC, approximately $1 billion of that spread among 10,000 depositors is uninsured. There is no guarantee depositors will get all of that money back, but the FDIC said it will pay customers at least 50 percent of their uninsured deposits and perhaps more as it sells off IndyMac’s assets. Regulators said they have already begun contacting uninsured depositors to discuss their options.

Officials estimated that the takeover will cost the FDIC between $4 billion and $8 billion.

FDIC Chief Operating Officer John Bovenzi said in a televised statement Sunday that customers should not panic and should view the federal takeover as nothing more than a “change in ownership.”

IndyMac, once a leading mortgage lender specializing in “Alt-A” loans for borrowers with less-than-perfect credit, collapsed under the weight of the faltering mortgage market. The company struggled with significant write-downs as customers began defaulting on their loans at high rates.

Recently, the company cut its services and announced it would slash its workforce by more than 50 percent in an effort to stay afloat.

Since regulators took control of the bank, IndyMac has remained quiet, referring reporters’ questions to the FDIC.

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