Why did mortgage-lender IndyMac (IMB) just become the country’s largest bank failure in 15 years? Because New York senator Chuck Schumer scared the bejesus out of depositors and started a run on the bank.
IndyMac’s customers, afraid their savings might disappear, stampeded tellers and demanded their money…
The run on the bank came after a critical letter about the bank from Senator Charles E. Schumer, Democrat of New York. Federal regulators said on Friday that Mr. Schumer’s letter had prompted the collapse by causing the run and scaring away potential acquirers.
“The senator made comments in his letter questioning the viability of the institution,” John M. Reich, director of the Office of Thrift Supervision, said in a phone call with reporters. “When a member of the United States Senate makes such a statement, it frightens depositors.”
In the days after Mr. Schumer’s letter was released on June 26, IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, the government said. Before Mr. Schumer’s letter, the bank had been receiving net inflows of money from depositors, Mr. Reich said.
Mr. Schumer, who has been critical of bank regulators for months, released a statement criticising Mr. Reich’s agency.
“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.