Did Senator Chuck Schumer Cause Indymac Bank Failure?

Director of Office of Thrift Supervision Accuses

Senator Chuck Schumer, Democrat from New York, has accused of causing the collapse of Indymac Bank, the second biggest bank failure in American history. Senator Schumer has denied causing the run on Indymac that resulted in its failure and takeover by federal authorities.

The controversy started on June 27^th when Senator Chuck Schumer's office released a letter sent to various bank regulatory agencies calling into question Indymac Bank's viability and urging steps be taken to prevent the bank's collapse. The public disclosure of the letter from Chuck Schumer, who serves on both the Senate Finance Committee and the Senate Banking, Housing, and Urban Affairs Committee, resulted in an eleven day run on Indymac that resulted in the withdraw of more than $1.3 billion dollars.

John Reich, the director of the Office of Thrift Supervision, blamed the Indymac bank failure on the comments made in Senator Chuck Schumer's letter. Reich suggested that Schumer had given the bank a "heart attack."

Chuck Schumer fired back, laying the blame on bank regulators for turning a blind eye to Indymac's "fast and loose lending practices" until it was too late. Reich conceded that Indymac, which had been plagued by mortgage loan defaults, might have failed on its own without being helped along by Senator Chuck Schumer's public remarks.

Indymac used to specialize in alt-a style home loans, generally given to borrowers who cannot fully document their assets or income. Though most of these problem loans were sold off, some were still being carried on Indymac's books. Defaults continued to mount, further damaging Indymac's fiscal health.

The Federal Deposit Insurance Corp is now supervising Indymac's operations. It is estimated that the tax payers will have to cover between four and eight billion dollars in bad Indymac loans.