Dedicated to Deposits: Deals, Data, and Discussion

Indymac Responds to Regulators' Actions - Impact to Depositors?

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Update 7/11/08: FDIC puts Indymac Bank into conservatorship. See post for more details.

Indymac reported today in a Stakeholder Letter that regulators have labeled it as not "well capitalized". Also, it announced that it expects the loss for the second quarter to larger than the first quarter. As a result, it announced the following actions it will take:
  • cannot accept brokered deposits without FDIC waiver
  • stop accepting most new loans
  • reduce workforce from 7,200 to roughly 3,400 over the next couple of months

This MarketWatch article has more details on this latest event.

Indymac Bank's internet CD and money market rates have remained the same as what I reported on Friday. These include the very high rates of a 4.10% APY 6-month CD, a 4.40% APY 13-month CD and a 4.85% APY 36-month CD.

I'm not sure what this latest action will mean in terms of deposit rates. Without brokered deposits, they'll have to rely more on the internet. However, they may have less need for deposits since they'll be cutting way back on new loans. I just found this old yet relevant FDIC press release on brokered and rate-sensitive deposits. Below are some relevant excerpts:
Banks falling below the adequately capitalized range may not accept, renew, or roll over any brokered deposit nor solicit deposits with an effective yield more than 75 basis points above the prevailing market rate. ...

Deposits attracted over the Internet, through CD listing services, or through special advertising programs offering premium rates to customers without another banking relationship, also require special monitoring.

So this may affect the rates Indymac will be able to offer on its internet CDs and money market rates.

Is there any risk if you stay below the FDIC limits?

I can only advise based on what the FDIC has reported. According to this FDIC page, the accumulated interest is covered assuming the combined balance is under the insurance limit:
FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.

If the bank fails, there shouldn't be much of a delay to get back your insured deposits. According to this FDIC FAQ:
Federal law requires the FDIC to make payment as soon as possible. Historically, the FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. Deposits purchased through a broker may take longer to be paid because the FDIC may need to obtain the broker's records to determine insurance coverage.

This MarketWatch article reports on a recent worst case example:
the longest FDIC employees can remember depositors losing access to their funds was in the 1999 failure of First National Bank of Keystone, in West Virginia. Bank customers waited from Sept. 1 to Sept. 7.

If you have different or other information on FDIC coverage, please include the sources in your comments.

Thanks to the readers who mentioned this latest news in emails and in the comments.


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Comments
7 Comments.
Comment #1 by Top CD Rates (anonymous) posted on
Top CD Rates
It will be interesting to see how this develops. Although IndyMac is reducing the work force and basically stopping their mortgage loans, they still have quite a need for short-term funds.
Especially given a small run they experienced in late June. See http://theimbreport.com/?p=158.

1
Comment #2 by Emily (anonymous) posted on
Emily
They will have a run the funds, see this in the times.
http://www.nytimes.com/reuters/business/business-indymacbancorp.html?_r=1&oref=slogin
Also, I found the best rates for short term CDs at this consumer site https://www.moneyaisle.com/
check it out.

1
Comment #3 by Anonymous posted on
Anonymous
With the one-year CD now at 4.45% APY, that is awfully tempting for an insured account.....

1
Comment #4 by gary (anonymous) posted on
gary
So is Waterfield Financial Services the "broker" for the AARP money market account (currently 3.5%) that is held in Huntington National Bank. The statement I get says Huntington National Bank and AARP Financial Savings Center (powered by Waterfield Financial) on the header.

1
Comment #5 by Anonymous posted on
Anonymous
Bank Guy, what do you think about https://www.moneyaisle.com ? It sounds like a good way to get high yield CD or saving, but there is also a risk of not knowing who's bidding on the other side and could they be a fraud, at least sometimes.

1
Comment #6 by Banking Guy (anonymous) posted on
Banking Guy
I reported on MoneyAisle in this June post. When I tried it, I didn't get a rate better than what I list on this site (even without Indymac). Some have reported better luck since then.

1
Comment #7 by Bozo (anonymous) posted on
Bozo
To: All
Re: Indymac

In my humble opinion, they are just gaming the FDIC, trying to raise capital (losing cause) knowing they are on the verge of bankruptcy.

It's OK if you know what you're getting into.

Just my $.02. Yours,

Bozo

1