Schumer Might be Investigated Over His Role in Bank Failure
Let's start out with a little background.
Senator Schumer writes a letter to federal bank regulators warning about the imminent failure of IndyMac.
The U.S. Senator who leads the Senate subcommittee that oversees the Federal Reserve and economic policy has written letters to federal bank regulators questioning the condition of IndyMac Bancorp Inc. of Pasadena, news services reported Friday.
Sen. Charles Schumer, a Democrat from New York, sent the letters to the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco. The letters reportedly said Schumer is concerned IndyMac "may have serious problems with its current loan holdings, and could face a failure if prescriptive measures are not taken quickly."
IndyMac Bancorp Inc. said it is working with regulators to "further improve" its safety and soundness after a senator's letter last week raised concerns that the bank could collapse.
The Pasadena, Calif.-based mortgage lender said Monday that the letter, by Sen. Charles Schumer, D-N.Y., gave "the wrong impression" on several issues.
Depositors withdrew about $100 million from the bank in the wake of Schumer's letter, company spokesman Grove Nichols said in a prepared statement. The withdrawals are equivalent to one-half of 1 percent of the bank's deposits, he said.
Here's from the press release issued by IndyMac's regulator, the Office of Thrift Supervision: "The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.
California's attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank's collapse by releasing confidential information.
At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company's ability to survive.
The FDIC took control of IndyMac on July 11 after depositors withdrew more than $1.3 billion over 11 days. It was the third-largest bank failure in U.S. history. At the time, OTS Director John Reich blamed Schumer's letter for causing the run on the bank.
A couple of notes I feel I must make.
IndyMac was federally insured. Theoretically, this means that it cannot fail and everyone's money should have been safe. Obviously, one of the major reasons for this federal insurance failed because IndyMac still ended up failing.
My other point is that if Mr. Schumer was really concerned about IndyMac failing he would have had a private discussion with the right people. He's not some junior Congressman from Alaska, he's the senior senator from New York and serves on senate committees that deal with the housing market. Anything he says that becomes public will have a large affect on banks. So either he is stupid (probably) or he wanted the bank to fail. It became a fait accompli when he wrote that letter.