12 Jul 2008

US regulators shut down major mortgage lender

5:15 pm on 12 July 2008

Regulators in the United States have taken over the running of California- based mortgage lender IndyMac following a run on deposits.

The Federal Deposit Insurance Corp will run the bank while it looks for a buyer.

IndyMac is the second-largest financial institution in US history to close.

The FDIC said the estimated cost of the bank's failure to its insurance fund is between $US4 billion and $US8 billion. The regulator said it would operate IndyMac to maximise the value of the company for future sale.

IndyMac's primary regulator, the Office of Thrift Supervision, blamed comments by New York Democratic Senator Charles Schumer for causing a run on the deposits at the largest independent publicly-traded US mortgage lender.

Mr Schumer responded quickly on Friday, blaming the OTS for not doing its job and for letting IndyMac's loose lending practices continue.

Depositors have been withdrawing cash at an elevated pace since late June, when Mr Schumer questioned IndyMac's ability to survive the housing crisis.

In the following 11 business days, depositors withdrew more than $US1.3 billion from their accounts, the office said.

"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."

The successor bank run by the FDIC will open for business on Monday.