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FDIC says IndyMac failure costlier than expected
August 26, 2008 / 9:50 PM / 9 years ago

FDIC says IndyMac failure costlier than expected

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WASHINGTON, Aug 26 (Reuters) - A U.S. banking regulator said the failure of mortgage lender IndyMac Bancorp Inc IDMC.PK will deliver a bigger blow to its insured deposit fund than originally expected.

The Federal Deposit Insurance Corp said on Tuesday it now expects IndyMac's failure in July to cost its insurance fund $8.9 billion, compared with the previous expected range of $4 billion to $8 billion.

The FDIC also said during its quarterly bank briefing that it will soon start widely marketing IndyMac's assets.

"We hope to market it certainly in the third quarter," FDIC Chairman Sheila Bair told a news conference. "I think we're going to be marketing it both as a whole bank as well as in pieces."

Nine U.S. banks have failed this year, including IndyMac, which became the third-largest U.S. bank failure ever. It was one of the 117 problem banks on the FDIC's second-quarter watch list of institutions with financial, operational or managerial weakness that threaten their financial viability.

IndyMac accounted for $32 billion of the combined $78 billion in assets of problem banks on the FDIC's watch list.

The FDIC said its Deposit Insurance Fund fell in the second quarter to $45.2 billion, down from $52.8 billion at the end of the first quarter, due to an increase in bank failures.

The agency oversees the industry-funded reserve used to insure up to $100,000 per deposit and $250,000 per individual retirement account at insured banks.

Diane Ellis, the FDIC's associate director of financial-risk management, said IndyMac's expected hit to the fund blossomed because analysts have had more time to value IndyMac's assets and have assigned some higher loss rates.

Also, some deposits that the FDIC originally thought were uninsured are actually insured, Ellis said.

The FDIC also said on Tuesday the decline in the insurance fund's balance caused the reserve ratio to fall to 1.01 percent as of June 30, from 1.19 percent the prior quarter.

Because the reserve ratio -- the fund's balance divided by the insured deposits -- fell below 1.15 percent, the FDIC is forced to develop a restoration plan to replenish the fund.

The FDIC will consider such a plan in early October, it said, which will likely force banks that engage in riskier activities to pay more into the fund than other U.S. banks. (Editing by Braden Reddall)

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