IndyMac Bank is the latest addition to the failed bank list from the Federal Deposit Insurance Corporation, the fifth collapse so far for 2008.
With the mortgage crisis deepens, this year could be the latest banner year for bank and savings and loan failures as defaults and foreclosures rise due to bad lending, economic jitters and greedy investors and homeowners who took risks without thinking.
In the past eight years, 2002 has been the banner year for its 12 failed institutions, according to the FDIC.
That’s when Sept. 11 woes and the dot com bust caught up with the banking sector, said Ross Waldrop, a senior banking analyst at the FDIC.
The FDIC rates banks on a 1 to 5, with higher numbers indicating higher risk of failure.
The agency’s list of problem institutions grew from 76 at the end of last year to 90 in the first three months of the year, an 18 percent jump. Those 90 institutions represent $26.3 billion in assets, according to the FDIC’s latest quarterly report. It’s the sixth consecutive quarter that the number has grown since a historic low of 47 at the end of the third quarter in 2006, Waldrop said.
The list of who’s good and bad is confidential, the analyst said, because the FDIC does not want good ratings to be used as a marketing tool and bad ratings to further sink the institution.
“We strive not to do anything that would harm public confidence or lead to problems for an institution, other than enforcement-type action,” Waldrop said.
It’s what California-based IndyMac and the Treasury Department’s Office of Thrift Supervision feel happened after Sen. Charles Schumer (D-N.Y.) publicized a June 26 letter to regulators warning of IndyMac’s possible collapse. That sent throngs of depositors to IndyMac branches to demand all their money, and more than $1.3 billion were withdrawn in 11 days, federal officials said. It stressed out an already-financially-unstable bank, suffering from its focus on subprime and no-documentation mortgages.
IndyMac has two Long Island two retail loan offices but no bank branches.
“This institution failed today due to a liquidity crisis,” OTS director John Reich said in a statement Friday, when the government took over the bank. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
In his defense, Schumer said the company had been in trouble for months and that regulators were lax in taking action to protect consumers from a possible failure. “The regulators should have done more sooner,” Schumer said in a statement last week before the takeover. “The home loan bank system, for instance, should not bankroll abusive lending. Going forward, the regulators should consider ways to implement stricter oversight over the lending system so that there isn’t another IndyMac.”