Schumer defends comments on IndyMac Bancorp

July 13, 2008 7:44:13 PM PDT
Sen. Charles Schumer on Sunday defended himself against claims by regulators that he was partially to blame for a run on IndyMac Bancorp Inc. that led to the bank's takeover by the government Friday. At a news conference Sunday, the New York Democrat deflected blame cast upon him by regulators for causing a run on the bank that saw depositors withdraw more than $1.3 billion during the 11 days after Schumer released a letter about the possible risks of IndyMac failing.

"The regulator here was asleep at the switch," Schumer said. "The administration is doing what they always do, blaming the fire on the person who called 9-1-1."

Schumer noted his letter in late June provided "no new revelations" about IndyMac, and instead pointed out the bank's problems had been building for years.

On Friday, the Office of Thrift Supervision transferred control of IndyMac to the Federal Deposit Insurance Corp. because it did not think the lender could meet its depositors' demands.

IndyMac is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said after taking control of the bank.

As of March 31, IndyMac had $19.06 billion in total deposits.

Regulators pinned part of IndyMac's recent problems on Schumer's June 26 letter causing alarm with depositors, leading to the run on the bank that that essentially sapped it of the liquidity needed to continue functioning properly.

During the housing boom earlier in the decade, IndyMac was one of the largest lenders of alt-A loans - mortgages given to customers with minor credit trouble or that did not have the proper documentation to receive a traditional, prime loan.

Schumer was quick to point out Sunday that IndyMac is an outlier among banks because it was heavily involved in originating riskier mortgages than traditional community and regional banks.

Defaults among alt-A mortgages, like many other nontraditional loans, rapidly increased over the past year, forcing banks like IndyMac to set aside more money to cover defaults.

It also made it difficult for IndyMac to sell pools of mortgages - known as mortgage-backed securities - because investors shied away from bonds backed by the troubled loans. That left IndyMac searching for new ways to generate capital to continue operations, as it relied heavily on the mortgage securities market to raise funds.

John Bovenzi, FDIC's chief operating officer and IndyMac's new chief executive, said standards should be implemented to ensure other banks don't make the same mistakes.

"It's a difficult time," Bovenzi told CNN Sunday night. "And there were certainly institutions that made loans that shouldn't have been made."

The bank is scheduled to reopen Monday as IndyMac Federal Bank, FSB, under the oversight of the FDIC.

The FDIC estimates its takeover of IndyMac will cost between $4 billion and $8 billion.

The FDIC set up a help page and hot line for IndyMac customers with questions regarding their deposits.


Load Comments