On 3/17/2008 I posted IndyMac I’m Never Coming Back.
IndyMac has the lowest rating a bank can receive with Safe and Sound ratings. After seeing Bear Stearns implode in days, I didnt need much encouragement to close that account out immediately.
Then on 7/2/2008, I followed it up with IndyMAC – Dead Bank Walking?
Tonight after the market closed the FDIC came in and closed IndyMAC. This is the 2nd largest bank closure in United States history. My guess is there is a much bigger bank in wings that will go under. I’ll repeat the question:
Do you know how safe your bank is?
UPDATE (7/27/08): Turns out Safe and Sound may not have updated and accurate data on the health of a bank. Don’t Count On The “Safe & Sound” Rating Of Bankrate.Com
Nick
Jul 14, 2008 — 11:04 am
I’m with BofA. I’m feeling pretty safe.
Also, I’m sure this reflects poorly on my, but I had never heard of IndyMAC until you mentioned it.
Also, I know that this is a chicken and egg sort of thing, but panicky people pulling their money out of banks is what tends to send them under. I’m not saying that you were wrong for doing so, but these sorts of things do tend to be self-fulfilling prophecies.
MAS
Jul 14, 2008 — 11:21 am
IndyMAC didn’t fail because there was a run on it. It failed because it was under its capital tier requirements. Capital Tier requirements.
From the WIKI page on Capital Requirements:
“To be well-capitalized under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 capital ratio of at least 6%, a combined Tier 1 and Tier 2 capital ratio of at least 10%, and a leverage ratio of at least 5%, and not be subject to a directive, order, or written agreement to meet and maintain specific capital levels.”
Read somewhere that IndyMAC had fell to a 1.75% capital ratio before the FDIC shut them down.
Look at WaMu’s stock today (down 31%) as of this writing. Tier 1 is calculated off shareholder equity. Oops.
Nick
Jul 14, 2008 — 1:09 pm
From an article on TheStreet.com (Not sure how to paste in the link): OTS blamed the failure on a bank run following a June 26 letter to the OTS and FDIC from Sen. Charles Schumer (D., N.Y.) that expressed concerns about IndyMac’s viability. Depositors withdrew more than $1.3 billion from the bank over the next 11 days, OTS said.
I don’t know where this falls vis-a-vis their overall capitalization, but $1.3 billion out the door in 11 days is a lot of scratch. Sure seems a little self-fulfilling to me.
You say the bank is doomed. You pull your money out, as does everyone who agrees with you. Guess what. The bank is definetely doomed.
Oh, and in point of fact, since all of that money was federally insured, the bank is still actually open for business, check are being honored, ATM cards still work, etc.
MAS
Jul 14, 2008 — 1:25 pm
Safe and Sound ratings had this bank with the lowest score 6+ months ago. They were going under regardless. Leverage is a son-of-a-bitch when the underlying assets decline in value.
Not all money is federally insured. Only up to 100K. IndyMAC customers with more than 100K in a single account (idiots) lost over $1B. Those with less than 100K ran the risk of being inconvenienced. So far it sounds as if things ran smoothly. I wasn’t willing to take that risk. That is why I pulled my CD back in March when it matured.
The FDIC has now used up ~10% of its reserves and we are only 1 bank failure into this mess. Some estimates are saying 150 banks are in trouble.