the reporter told me that no other reporters were there because they were at one branch in Encino where a small riot was under way (the bank's 32 other branches were peaceful). Apparently, two sets of numbers had been handed out the day before. A third set was given out that morning. As a result, there were three groups of people trying to get into the branch, leading to some fairly heated arguments.
One of the bank's managers visited that branch to restore order. Despite taking more than a slight amount of abuse, he settled the crowd within half an hour. There were no more lines after that. Nevertheless, we now had one more day of worldwide news coverage that showed agitated depositors waiting to withdraw their money.
Even though the lines were gone, people kept withdrawing money – totaling about $3 billion in the two weeks following IndyMac's closure. In one sense, the withdrawals were not a big concern, as we were not going to run out of money. The FDIC owned the bank and was ready to provide it with whatever amount of money was needed. Our broader concern was that these withdrawals probably indicated that people across the country were worried about the safety of their money.
Whenever I had the chance, I explained to the bank's customers and to broader audiences that as a government-owned bank, IndyMac Federal Bank was as safe as any bank in the country. But even that raised some questions. One woman who passed by me on the street stopped to ask me if I could guarantee that the federal government would never fail. Clearly, she was concerned. I was taken aback by her question. I told her that there was nothing safer, but her question was one more indication of diminished public confidence in the financial sector and the federal government.
One unexpected problem arose in the days following IndyMac's closure: many of the bank's customers started to complain that other banks were placing excessively long holds on their checks or, in some cases, were not accepting them at all.
When IndyMac's depositors withdrew their money, they were given an official government check. There should have been no concern about the safety of those checks, but apparently there was. I had to call several major bank CEOs to complain about what was happening at many of their branches. And the FDIC issued a notice to all of the banks stating that they were expected to accept IndyMac's government-issued checks, which they ultimately did.
A more legitimate concern was that some IndyMac depositors might want to get all of their uninsured money back and might try to write personal checks for amounts above what was insured. To alleviate this concern, we set up a private hotline that bankers could call if they had any worries about the validity of personal checks brought to them by IndyMac's customers. When they called the hotline, we told them if the customer had enough money to cover the check. After taking these and a few other steps, the problem was fixed.
After the first couple of weeks, the volume of deposit withdrawals died down. The FDIC stepped up its educational campaign on the safety of deposit insurance and made some changes to simplify how trust accounts were insured.
I felt that our initial set of challenges had been addressed. The first priority in any bank failure is to maintain public confidence. It had been a rough start, but now the situation had stabilized.
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