Federal regulators seized IndyMac Bancorp on Friday evening, marking one of the largest bank failures in American history.
The bank, once part of the Countrywide Financial Corporation, is the first major bank to shut its doors since the mortgage crisis erupted more than a year ago. (IndyMac is not related to Fannie Mae and Freddie Mac, the big mortgage finance companies that alarmed the stock market this week.)
The closure followed a frenzied week during which IndyMac’s executives tried to bolster the ailing bank. IndyMac, based in Pasadena, Calif., stopped making new loans and announced layoffs of more than half of its 7,200 workers. But IndyMac’s customers, afraid their savings might disappear, stampeded tellers and demanded their money.
Most of IndyMac’s deposits are guaranteed by the Federal Deposit Insurance Corporation, which will operate the bank and try to sell it.
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 criticizing 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.”
For all the write-downs and bad news on Wall Street over the last year, only five local and regional banks have shut their doors. The handful that have failed have been a fraction of the size of IndyMac. IndyMac held $32 billion in assets as of late March, according to the government release.
“It’s the biggest failure in 24 years,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. “You haven’t had a lot of failures of that size, yet.”
It has been 15 years since any bank larger than $10 billion in assets collapsed. The largest bank failure on record was in 1984 when Continental Illinois National Bank and Trust in Chicago hit trouble, presaging the savings and loan crisis.
IndyMac ran into trouble late last year when it was not able to sell off a chunk of its Alt-A mortgage loans, which go to homeowners with credit that is better than the sub-prime category. IndyMac was being shopped to potential investors this summer, but their interest disappeared after Mr. Schumer’s comments, said Timothy T. Ward, deputy director of examinations, supervision and consumer protection at the O.T.S.
William Isaac, chairman of the F.D.I.C. in the early 1980s, cautioned against panic. Bank failures so far pale against the 3,000 bank failures in the 1980s, he said.
Elizabeth Sullivan, an IndyMac customer in the Pasadena area, said she almost withdrew her money after hearing about Mr. Schumer’s letter two weeks ago. Once she felt assured that the F.D.I.C. would insure her money, she decided against it, in part out of loyalty to a teller she likes at her local branch and because she felt a public duty not to contribute to “mass panic.”
“Now I wish I had withdrawn it,” she said. “That was in my gut.”