IndyMac Bancorp Customers Would Recoup Lost Deposits Under House Proposal
Customers of IndyMac Bancorp Inc., the California mortgage lender that failed two years ago, would recover some of their $265 million in lost deposits under a proposal offered by House lawmakers to the financial-overhaul bill.
Pasadena-based IndyMac collapsed in July 2008, three months before Congress temporarily boosted the Federal Deposit Insurance Corp.’s insurance limit on individual deposits to $250,000 from $100,000. House lawmakers are proposing making the higher limit permanent and retroactive to Jan. 1, 2008.
“For the folks who had deposits that weren’t covered, it’s going to be something that will be favored,” Wayne Abernathy, the executive vice president of the American Bankers Association, said in a telephone interview. “This will be paid for by the banking industry.”
The proposal was released today by House lawmakers as part of a package of proposed changes to the bill that aims to overhaul regulation of Wall Street. House and Senate negotiators are set to consider the changes tomorrow during the second meeting of the committee working to merge the legislation passed by each chamber.
IndyMac, the fourth-largest U.S. bank to fail, was seized by regulators after a run by depositors depleted its cash. Customer deposits were insured by the FDIC for as much as $100,000 at the time, leaving about $265 million in uninsured deposits, said FDIC spokesman David Barr.
‘More Even Treatment’
The proposed change “would provide a more even treatment of uninsured depositors since the onset of the crisis,” Barr said.
The FDIC previously arranged to give IndyMac depositors 50 percent of their money above the insurance limit, Barr said. For example, a customer who had $300,000 on deposit at IndyMac has already received $200,000 -- the $100,000 insured amount and another $100,000 representing 50 percent of the $200,000 that was uninsured.
If the $250,000 limit becomes retroactive to Jan. 1, 2008, that customer would receive another $50,000 for a total of $250,000, Barr said.
Congress in October 2008 temporarily raised the limit to $250,000 through the end of 2009 as part of legislation to set up a $700 billion financial-rescue package. Congress in 2009 approved legislation extending the limit to 2013.
The funds to reimburse customers of IndyMac and other banks that failed in the nine-month period would come from the FDIC’s deposit-insurance fund, Barr said. The fund, which is supported through fees on the banking industry, had a $20.7 billion deficit at the end of the first quarter, according to the latest data from the FDIC. The fund balance reflects $40.7 billion the FDIC has set aside to cover losses from anticipated bank failures.
Congressional negotiators tomorrow also are scheduled to consider changes to language that sets up a national insurance office, strengthens oversight of credit-rating firms and requires hedge-fund managers to register with the Securities and Exchange Commission.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, have said they would like to complete negotiations and get a single bill for President Barack Obama to sign into law by July 4.