Jul 11, 2008

Breaking the bank*

Federal regulators have seized Pasadena-based IndyMac bank in what the Wall Street Journal describes as "one of the largest bank failures in U.S. history."

The head of the Office of Thrift Supervision tries to pin some of the blame on Sen. Chuck Schumer, who panicked customers a couple weeks ago with a letter questioning the bank's solvency. But as the WSJ article makes clear, the IndyMac's failure is a part of a wider economic trend and a sign of what's to come:

IndyMac's arc -- rapid growth and then an even more rapid descent -- is a microcosm for much of the boom-to-bust cycle that the mortgage industry has experienced since the housing crisis surfaced in late 2006.

While dozens of lenders have gone out of business during that time, IndyMac is one of the few federally insured banks to fail. Banking regulators are bracing for a slew of failures over the next year, bulking up their staff of bank examiners and taking an increasingly tough approach toward banks that are seen as risky.

*(LA Times, Bloomberg, LA Biz Observed)

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