FDIC Closes IndyMac Bank

[ChrisC]

If they have not yet changed how they do things.... the interest rates will not be changed on the CDs. Last Friday Indymac stopped existing as a S&L. All deposits etc. were transferred to a 'bridge bank' with the same terms. They will try and decide what is the best tactic to minimize their losses, ie. sell as ONE entity or split it up into many smaller banks... they then put these out for bid...

The bidder will say if they want to keep the rates as is or not... if there are not a lot that are out of whack, they might keep them... if there are, then you will get a revised rate when it is sold...

From what I saw on TV last night... there is still a run on the bank and a LOT of people are taking out their money... I was very surprised to see all these 'old folks' who were taking out money.... they had to have been through the S&L crisis etc... maybe that was only a Texas issue, but almost every S&L changed hands a number of times..

Typically, the FDIC has 90 days to repudiate (or affirm) the interest rate on any interest bearing account it has acquired as a result of a receivership. If you read the FDIC press release carefully, you might gain some understanding of the mechanics of the closing and transactions, which are complicated by the formation of a new IndyMac, which acquired some of the assets and liabilities of the old IndyMac (placed in receivership). The new IndyMac has now been placed under a conservatorship by the FDIC. Anyone who has seriously worked in this area would know of this transaction as a "pass-thru receivership into a new FSB bank under conservatorship." (Bridge Banks can only be formed for National Banks in receivership like the mega-bank failures of First Republic Bank, M Corp, Bank of New England in the late 1980's and early 1990's; IndyMac was a thrift so the functional equivalent of the Bridge Bank is being used, i.e. a pass-thru receivership into a new FSB under conservatorship). These arcane machinations are further complicated by the duality of roles undertaken by the FDIC, as insurer of deposit accounts and as receiver of the failed bank's assets and liabilities.

I say all of the above because the CD rate really depends on which entity, old IndyMac under FDIC receivership or new IndyMac under FDIC conservatorship has the CD. If old IndyMac under FDIC receivership has the CD (i.e. not been transferred to new IndyMac) -- which likely occurs when the CD is over the insured amount -- the CD holder will likely receive a pay-out check for the insured amount and a receivership certificate for the uninsured amount (with the payment of a 50 percent "advance dividend" cash payment from the FDIC receivership estate). The receivership certificate is a claim on the assets of the old IndyMac assets in receivership, but depositors holding that certificate get priority ahead of other general creditors. If new IndyMac under FDIC conservatorship has the CD, then it's possible that the old rate could be honored, but why would the FDIC do that if the franchise value of the deposits has already been undermined by what appears to be a lot of negative publicity? Normally rates are honored if a new assuming bank (including the FDIC as conservator) thinks it will lose franchise retail value of the depositors by breaking the rates, but in this case, according to the newspaper reports, a lot of the deposits are "brokered" or "hot money" so these are deposits that have little, if any, retail value, anyway!

 

[ronin]

I was told that the existing rate on my CD accounts will be honored until maturity.

 

[ChrisC]

I was told that the existing rate on my CD accounts will be honored until maturity.

Thanks for the information; but I bet they busted the rates of all brokered deposits. I bet you have a nonbrokered account and the bank wants to keep you as a customer, and the FDIC doesn't want to spook the public, as there's enough hysteria already being played out.

 

[CaseInPoint]

After hearing about the IndyMac fiasco, I met with my banker today to check out strategies for being insured on non-IRA accounts over $100k.

Bottom line - No such thing. Instead, need to open multiple accounts or CDs. Otherwise - buy Treasuries.

 

[ChrisC]

After hearing about the IndyMac fiasco, I met with my banker today to check out strategies for being insured on non-IRA accounts over $100k.

Bottom line - No such thing. Instead, need to open multiple accounts or CDs. Otherwise - buy Treasuries.

You can leverage insurance with multiple accounts with multiple account owners, but I this structuring has its limits. At one time, there was at least one AAA-rated bank -- not sure you can say that these days. Best bet is to open multiple accounts with multiple owners in multiple federally-insured depository institutions (banks and credit unions). When I hear of individuals or organizations (particularly nonprofits) with uninsured amounts in banks or credit unions, I always cringe.

 

[OhSoClose]

When I hear of individuals or organizations (particularly nonprofits) with uninsured amounts in banks or credit unions, I always cringe.

Amen.

NCUA once had to deny an insurance claim submitted by an organization of nuns on a multi-million dollar account at a failed credit union. I know my odds of ever getting to heaven likely diminished that day.

 

[UncleHoney]

I often wodner about custodial accounts. maybe $100K per kid??

Sorry, I missed this post early this morning. Here a link to the NCUA insurance coverage that I follow.

http://bmifcu.org/pdfs/NCUASpecialBulletin.pdf

 

[OAG]

Amen.

NCUA once had to deny an insurance claim submitted by an organization of nuns on a multi-million dollar account at a failed credit union. I know my odds of ever getting to heaven likely diminished that day.

Details? Be specific or is this just a rumor you can not substantiate which is how these some of these thing be come "fact".

 

[ChrisC]

Details? Be specific or is this just a rumor you can not substantiate which is how these some of these thing be come "fact".

If OhSoClose works for NCUA, as he claimed, or the credit union in which this occurred, his disclosure of this information might be contrary to the Federal Privacy Act or the Bank Privacy Act, unless this information is readily available to the public. His basic point was a particular charitable or religious organization had uninsured accounts at a credit union; this is not surprising. At IndyMac, the FDIC press release says it projects around $1 billion in uninsured accounts -- these can just all be individuals but likely include nonprofits like Churches, Social and Fraternal Organizations, Municipalities/Political Subdivisions, Homeowners Associations, Trust and Escrow Accounts (like Lawyer IOLTA/Client Accounts), etc.

Google Freedom National Bank, a small bank in Harlem founded by Jackie Robinson that failed in the 1990's, and you will note the uproar that ensued when a number of charitable organizations, including Churches, had accounts that were uninsured and unprotected when that bank failed. The treatment of uninsured depositors of Freedom National Bank, when contrasted with the treatment of uninsured depositors at Bank of New England (where uninsured depositors were fully protected), lead Congress to enact changes in how "uninsured depositors" get treated in all banks, including those that are "too big too fail." In the past, uninsured depositors in mega-banks would routinely be protected in deals structured by the FDIC when those banks were resolved by the FDIC -- not the case anymore, as IndyMac also demonstrates.

 

[ERD50]

Google Freedom National Bank, a small bank in Harlem founded by Jackie Robinson that failed in the 1990's, and you will note the uproar that ensued when a number of charitable organizations, including Churches, had accounts that were uninsured and unprotected when that bank failed.

Hmmm, makes we wonder where our local govt, school district, and local church keep their money?

They might all be in debt, but they still have working cash reserves on hand, probably way over $100K.

-ERD50

 

[OhSoClose]

If OhSoClose works for NCUA, as he claimed, or the credit union in which this occurred, his disclosure of this information might be contrary to the Federal Privacy Act or the Bank Privacy Act, unless this information is readily available to the public. His basic point was a particular charitable or religious organization had uninsured accounts at a credit union; this is not surprising. At IndyMac, the FDIC press release says it projects around $1 billion in uninsured accounts -- these can just all be individuals but likely include nonprofits like Churches, Social and Fraternal Organizations, Municipalities/Political Subdivisions, Homeowners Associations, Trust and Escrow Accounts (like Lawyer IOLTA/Client Accounts), etc.

Google Freedom National Bank, a small bank in Harlem founded by Jackie Robinson that failed in the 1990's, and you will note the uproar that ensued when a number of charitable organizations, including Churches, had accounts that were uninsured and unprotected when that bank failed. The treatment of uninsured depositors of Freedom National Bank, when contrasted with the treatment of uninsured depositors at Bank of New England (where uninsured depositors were fully protected), lead Congress to enact changes in how "uninsured depositors" get treated in all banks, including those that are "too big too fail." In the past, uninsured depositors in mega-banks would routinely be protected in deals structured by the FDIC when those banks were resolved by the FDIC -- not the case anymore, as IndyMac also demonstrates.

The "nun" case I made reference to happened long ago. But ChrisC is right, the information OAG wants is not publicly available. The religious organization could have made its claim public by filing a lawsuit against NCUA after NCUA denied the insruance claim, but it chose not to file a lawsuit. The important point is that folks who run organizations seem to be the most likely to overlook the limits of federal insurance and to put huge deposits at risk, and that is particularly unfortunate when the organization is a charity or nonprofit

fyi, Chris, NCUA does not have the authority to establish "bridge" credit unions, so the IndyMac recievership is proceeding along a different tack than would a similar credit union failure.