Failure of mortgage giant could be isolated but probably isn't

Federal banking regulators sought to reassure the public Friday after seizing IndyMac Bancorp Inc., in what is being called the third-largest banking failure in U.S. history. The Pasadena, Calif.-based mortgage lender, which held as much as $8 billion in deposits, failed Friday after a crush of withdrawals from panicked depositors, according to the Reuters international news service. IndyMac specialized in mortgages to borrowers with limited resources and was especially vulnerable to the nationwide downturn in property values. The bank is expected to reopen Monday as IndyMac Federal Bank under the control of the Federal Deposit Insurance Corp., Reuters said. The director of the Office of Thrift Supervision, John Reich, blamed IndyMac's failure on recent comments by a powerful Democratic senator, even though the institution already was in distress. "This institution failed today due to a liquidity crisis," Reich said. "Although this institution was already in distress, I am troubled by any interference in the regulatory process." Sen. Charles Schumer questioned IndyMac's stability in June and blamed the OTS for lax regulation of the bank. That, of course, is most likely true considering the bank's unique financing scheme. But it also is highly likely that the collapse of IndyMac is a result of pressure on the economy from the mortgage crisis, which means more instability lies ahead. With the federal government ideologically opposed to taking concrete actions to fix the problems, more bank collapses are probably on the horizon.