Sen. Charles E. Schumer insisted last year that his surprisingly blunt public comments about IndyMac Bancorp weren't responsible for the Pasadena bank's failure.
In a report today on IndyMac’s collapse, the Treasury Department’s inspector general largely backs Schumer on that issue.
The New York Democrat on June 26 made public a letter he had sent to the Office of Thrift Supervision and the Federal Deposit Insurance Corp., saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers."
But the inspector general’s report says Schumer's letter just made clear to everyone else what the OTS and the FDIC already knew: that the bank was defunct.
"While the [deposit] run was a contributing factor in the timing of IndyMac’s demise, the underlying cause of the failure was the unsafe and unsound manner in which the thrift was operated," the report says.
Inspector General Eric Thorson told the Times: "We don't think the letter caused the failure. The bank was on its way going down already."
The OTS previously attempted to blame Schumer’s comments for scotching a deal that IndyMac was said to have been negotiating with potential investors to buy the bank. Those talks were going on weeks before the letter was released, the OTS said.
Darrel Dochow, who had been the Western regional director for the OTS, told the inspector general that "there were investors who were interested in investing in IndyMac" around the time of Schumer’s letter. Dochow asserted that "interest waned after the senator’s letter was published" and the run on deposits hit.
But the inspector general’s office said it checked on Dochow’s statement and talked with a principal at the investment firm that he had mentioned.
"Contrary to what OTS’ West Region director told us, the principal said that Sen. Schumer’s letter did not affect the firm’s investment decision," the report says.
-- William Heisel
Photo: Sen. Charles Schumer. Credit: J. Scott Applewhite / Associated Press
More Banks Threatened: FDIC 'Watch List' Tops 250
ABC News’ Daniel Arnall, Matt Jaffe and Charles Herman report: The Federal Deposit Insurance Corp. reports that commercial banks and savings institutions insured by the FDIC lost $26.2 billion in the fourth quarter of 2008, the first quarterly loss for FDIC-insured banks since 1990. For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990.
The FDIC said that 252 banks (3 percent of the banks it covers) are on its “watch list.†That’s an increase of 47 percent from the previous quarter. On average, about 13 percent of the banks on the watch list eventually fail.
The FDIC insurance fund -- money collected from banks to pay to insure your deposits should a bank fail -- was $18.9 billion as of Dec. 31, 2008, a drop of 45 percent in just 90 days.
"The unprecedented size was a result of large losses at a few institutions," FDIC chair Sheila Bair said today.
For the full year, the insurance fund fell by $33.5 billion, or 64 percent, because of more than $40 billion spent on bank closings. The fund is quickly being used, which is why the FDIC is expected to propose on Friday more than doubling the amount banks have to pay for the deposit insurance. Currently, it is 6.3 cents for every $100 insured. The proposed increase would be to 13.5 cents.
The FDIC also has a $30 billion direct line of credit with the Treasury Department. Recently the agency asked Congress to increase that line of credit to $100 billion. And if the fund were ever completely depleted, the FDIC has the support of the federal government.
Last year, 25 banks were shut down, the highest number since 1993. In just the first seven weeks of this year, 14 banks have been shut down.
One positive note: As people have pulled their money out of risky stock investments, it appears they are putting what money they do have in the bank. Literally. For all of 2008, total domestic deposits increased by 8.4 percent. And in the last three months of 2008, when the market was at its worst, total deposits increase by $307.9 billion, an increase of 3.8 percent, the fastest quarterly growth in nine years.
Commercial banks and saving institutions include everything from Citigroup, Bank of America and Wells Fargo. There are more than 8,305 of these institutions. As of Dec. 31, 2008, they had $13.8 trillion in assets (loans, etc.) and $9.0 trillion in deposits.
GM posts $47b loss
DETROITFOR General Motors Corp. nothing has stopped the bleeding. Not cutting 50,000 jobs in the US Not closing 11 factories. Not US$13.4 billion (S$20.7 billion) in government loans.
The teetering company, once the symbol of American industrial might, revealed on Thursday that it burned through US$19.2 billion in cash last year on its way to a US$30.9 billion loss. The century-old automaker said its only hope of living another year is more aid from the government.
Continuing jobless claims top 5.1 million people
First-time claims jump more than expected last week to 667,000 As bad as it is already, the economy keeps getting worse -- and government figures today provided more evidence that the downward spiral won't end anytime soon.
Yours sincerely, Somnath signs off
Speaker Somnath Chatterjee did not let go off one last chance to justify his defiance of the CPM’s demand for his resignation.
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