Updated from July 11.
( IMB) on late Friday was seized by federal regulators in the second largest bank failure in U.S. history.
The Office for Thrift Supervision, IndyMac's regulator, said IndyMac "is unlikely to be able to meet continued depositors' demands" and thus was "in an unsafe and unsound condition." It turned operation of the bank over to Federal Deposit Insurance Corp.
OTS blamed the failure on a bank run following a June 26 letter to the OTS and FDIC from Sen. Charles Schumer (D., N.Y.) that expressed concerns about IndyMac's viability. Depositors withdrew more than $1.3 billion from the bank over the next 11 days, OTS said.
"This institution failed today due to a liquidity crisis," OTS Director John Reich said in the statement. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."
Schumer, in a press conference Sunday, defended his letter, saying it offered "no new revelations" and only highlighted problems that had been festering for some time.
"The regulator here was asleep at the switch," Schumer said, according to the
. "The administration is doing what they always do, blaming the fire on the person who called 9-1-1."
IndyMac shares have plummeted from a high of $29.91 to 28 cents over the past year. The bank was plagued by the housing slump and roiling mortgage market, due to its concentration in Alt-A loans, which are made to more credit-worthy borrowers than subprime loans but often require less documentation.
The mortgage lender on late Monday said it
and would cut half of its 7,200 employees in an effort to address the capital concerns raised by OTS.
On late Tuesday it said it would sell a majority of its retail mortgage branches to Northbrook, Ill.-based Prospect Mortgage, part of an effort to address its regulator's concern that it is not "well-capitalized."
OTS said it began an examination of IndyMac in January.
"With no viable alternatives and insufficient liquidity, IndyMac was placed into receivership," OTS said in the statement.
TheStreet.com last week noted IndyMac's
, pointing out that the development portends bad news for other troubled thrifts like
Depositors are insured by the FDIC up to the statutory limits. A successor institution to IndyMac run by the FDIC should open Monday morning, but will have no access to banking services online and by telephone this weekend. They can continue to access funds this weekend by ATM, through other debit card transactions and by writing checks. Online banking and phone banking services will be available again on Monday.
This article was written by a staff member of TheStreet.com.