Inside the FDIC

Chapter 1IndyMac

I flew into Burbank, California, Thursday evening, July 10, 2008; drove a rental car the short distance to Pasadena; and checked into the Hilton Pasadena on South Los Robles Avenue. Dozens of my colleagues from the Federal Deposit Insurance Corporation (FDIC) were also checking into hotels throughout the city. We used our personal credit cards rather than our government cards. Why? Because if anyone learned that the FDIC had descended on Pasadena, they might conclude (correctly) that a bank was about to be closed.

Bank closings are carefully planned events, and they are usually handled quietly, smoothly, and uneventfully. The bank's depositors hardly know that anything has happened. For the vast majority, their money is safely protected by the FDIC's deposit insurance system. A bank is typically closed on a Friday afternoon and reopened under new ownership the following Saturday or Monday morning. Customers generally see the same bank employees at the same branch offices; only the name of the bank has changed. This well-rehearsed pattern is designed to maintain public confidence in the U.S. financial system and to prevent banks' depositors from trying to withdraw all of their funds at the same time.

But IndyMac was no ordinary bank, and this would be no ordinary closing.

IndyMac was a poster child for how home mortgage lending had spiraled out of control during the preceding boom years. The bank had been launched in 1985 as a division of Countrywide, a California ...