IndyMac's fate could test banking regulators

By Karey Wutkowski and Rachelle Younglai

WASHINGTON (Reuters) - Deeply troubled mortgage lender IndyMac Bancorp Inc IMB.N may have bought some time through sharp cuts in operations and selling some branches but its survival remains in question, creating a major test for banking regulators.

In particular the significant size of IndyMac's deposits that are insured by the Federal Deposit Insurance Corp might present a challenge. If the deposits, which total more than $17 billion, had to be guaranteed, that could temporarily dent the FDIC's war chest of around $53 billion.

IndyMac said this week it was unable to raise new capital, would slash staff by 60 percent, and had stopped making most home loans. Its shares have sunk to 38 cents, with one analyst forecasting they will be worthless.

Major victims of the credit crisis to this point have either been the subject of rescues by bigger banks, as in the case of mortgage lender Countrywide and investment bank Bear Stearns, or weren't major deposit-taking entities.

The FDIC insures up to $100,000 per deposit account and up to $250,000 per retirement account at insured banks.

But even if the FDIC had to step in and be responsible for IndyMac's insured deposits, the agency's fund wouldn't take a hit equal to the amount of those deposits.

"Clearly they wouldn't be on the hook for all of that," said Ann Graham, a law professor at Texas Tech University and former FDIC official.

She said that if IndyMac closed, the FDIC could arrange to have another institution pay to acquire the good assets.

Chip MacDonald, a banking lawyer at Jones Day in Atlanta, said about $11.3 billion of IndyMac's deposits are non-brokered deposits that would be easy to sell to another institution.

"The remaining $6 or $7 billion may have to be absorbed," he said.

The FDIC would then dip into its $53 billion fund to pay off the insured depositors but would quickly replenish that amount through assessments on healthy banks.

TRUSTING IN BAIR

The Financial Services Forum industry group expressed confidence in the FDIC and its chairman, Sheila Bair.

"Bair, in many ways, has been out in front of the financial crisis, sounding the alarm before it happened," said John Dearie, the forum's senior vice president.

"I have confidence that the FDIC will be able to deal with the challenges it might face," he said.