IndyMac died a year ago Saturday, the first major thrift to fail in the financial crisis. Its burial, marked by confusion, chaos, and a relatively sweet deal for a group of private equity titans, is unlikely to happen in the same manner today.

The aftermath of IndyMac, since renamed OneWest Bank, is telling, and provides a stark illustration of how much things have changed in the course of a year.

IndyMac Timeline

The Failure

The California thrift had been sinking into quicksand for at least 18 months before the Federal Deposit Insurance Corp. officially seized IndyMac on July 11, 2008. Several warning signs about its risk exposure and capital adequacy were missed by those in charge of catching them.

The FDIC and IndyMac management were preparing to handle the situation in a calmer fashion, with interested parties scanning its books in the weeks prior to its failure. But once Sen. Charles Schumer (D., N.Y.) questioned the bank's viability in an open letter to regulators, IndyMac's fate was sealed. Depositors raced to withdraw funds and investors sent the bank's share price down below $1.

Schumer was pilloried for airing his concerns, with some accusing him of accelerating the bank's failure to help investor acquaintances. Still, it doesn't seem that Schumer -- who denies those charges -- was trigger-happy or overly cautious. In fact, red flags were covered up by another regulator, the Office of Thrift Supervision, which allowed IndyMac to fudge its records to make it seem healthier than it actually was.

Eventually, IndyMac was acquired by well-heeled veterans of the private equity, banking and corporate world who smelled a bargain in the regulatory desperation. But as the FDIC began to evaluate IndyMac suitors, it soon became clear the regulator would have bigger fish to fry.

The Deal

After the collapse of Lehman Brothers in September, the credit and stock markets followed suit. The FDIC was left to grapple with the largest thrift failure in history, as Washington Mutual fell later that month. Wachovia was fast approaching the brink as well.

The agency was charged with negotiating deals for JPMorgan Chase ( JPM) to acquire WaMu, and played King Solomon in choosing Wells Fargo ( WFC) over Citigroup ( C), as the two banks battled over Wachovia's fate. But Citi, as it turned out, had its own issues to take care of, as would Merrill Lynch, and its eventual owner, Bank of America ( BAC).

Given the tumult of late 2008, it's unsurprising that the private equity consortium received the terms they did.

With no interest from banking behemoths, the FDIC could either run IndyMac itself until the market improved; split up IndyMac into several parts and sell each separately; or sell the entire bank through an auction, which was the course ultimately chosen.

The FDIC contacted 87 parties to participate in an auction that one source familiar with the deal describes as "very, very competitive." Nearly 80 of them showed interest in all or part of IndyMac, and 10 went as far as to perform due diligence.

The government was determined to retain as many IndyMac jobs as possible, and ensure that loan-modification programs for homeowners would meet certain specifications. But the top priority was keeping the cost to the insurance fund as low as possible, which the FDIC asserts it did.

"It's irrefutable that after an extensive and competitive marketing effort, the OneWest bid resulted in the lowest cost to the deposit insurance fund," says FDIC spokesman Andrew Gray.

OneWest refers to a consortium of investment groups headed by high-profile names like J. Christopher Flowers, John Paulson, Steve Mnuchin, George Soros and Dell ( DELL) founder Michael Dell. The group paid $13.9 billion for what Gray calls "a core customer base" of $6.4 billion in deposits and $23.5 billion in assets.

They also received a loss-sharing provision that critics have characterized as overly generous. The investor group agreed to absorb the first 20% of IndyMac's losses, with the rest of the hit to be taken by the FDIC. Its insurance fund stands to lose upwards of $10 billion on IndyMac's closure.

However, Gray notes that the cost of resolving IndyMac will ultimately depend on the housing market's recovery, since the FDIC has a gain-sharing provision as well. He says the loss-sharing terms were "fairly standard," and set by the FDIC. "It is not negotiable," says Gray.

The investors haven't outlined an earnings forecast for the deal. But Flowers in January said in a New York forum that "the government has all the downside and we have all the upside," according to the New York Times. Flowers declined to comment through a representative.

Spokeswomen for Mnuchin, who became CEO of the investor group's IMB HoldCo, and Terry Laughlin, CEO of the newly named OneWest Bank, also said neither executive was interested in commenting for this article.

The Aftermath

The IndyMac deal set the stage for more intense bidding from vulture investors. But several changes have occurred in its aftermath to ensure that future failures are less chaotic and perhaps less profitable for acquirers.

First, the FDIC is better prepared, and stands to receive more expansive powers under an Obama administration proposal that wipes out the OTS. Several high-level officials from that regulator have been stripped of their duties or resigned, related to the backdating scandal and other gaffes.

While a private equity consortium beat out bank competition to acquire BankUnited for $900 million in May, the FDIC has made it explicitly clear that such deals won't come easy.

Both deals included respected private equity titans, some of whom have close ties to regulators, including Flowers, Wilbur Ross and Blackstone ( BX). Both deals also included provisions to help struggling homeowners and put banking veterans in charge of operations, in the belief that they are well-equipped to shepherd the firms back to health.

In contrast, the FDIC opted to shut down Silverton Bank rather than hand it over to a group that included The Carlyle Group and three other private-equity investors. The implicit message in that move was made clear last Friday, when the FDIC unveiled a set of strict guidelines for private investors that hope to successfully acquire a bank.

The proposed rules included a 15% Tier 1 leverage ratio that is unlikely to pass muster on the private equity side. ("It's insane," says one insider who balked at the plan.)

After all, the private equity formula for making heady rewards is to get in cheap, turn around distressed assets quickly, then sell them off at recovery-level prices. Those firms have a ton of cash, but don't want to tie up large portions of it in reserves.

Lee Meyerson, who has advised on both the IndyMac and BankUnited deal at the law firm Simpson Thacher, says several key elements, from capital commitment to secrecy law jurisdictions to ownership rules will "likely have a dampening effect on private capital investor interest."

FDIC Chairwoman Sheila Bair acknowledged in a blunt statement that 15% was "opening high," and that the capital requirement would be a "contentious area." She added that she has an "open mind" for negotiating, but there was little wiggle room when it came to broader goals of the framework -- to keep banks well-capitalized, well-managed and stable.

"We don't want to see these institutions coming back," Bair said in a statement.

The window of opportunity for private equity in the banking sector may be fast closing. And firms like IMB HoldCo, which closed one attractive deal, may see broader plans to build a regional network through several acquisitions stymied.

That's especially true as the improved securitization market has been further bolstered by the launch of the Public-Private Investment Program. That gives troubled banks and the FDIC another option to get rid of bad assets once the markets have fully recovered.

Furthermore, healthier banks have started to gain interest in acquiring smaller rivals again. For instance, Goldman Sachs ( GS) and Toronto Dominion ( TD) were reportedly the competing bidders for BankUnited, and smaller banks with a lower profile, like First Niagara, have been vocal about expansion plans.

Until then, it seems private equity and the FDIC are strange bedfellows destined to get cozy with one another by reaching a middle ground.

"Right now what's left is private equity," says Joseph Lynyak, a partner at Venable LLP, who has advised private equity firms on bank deals. "If someone can come up with a better mouse trap, that's a great thing. But a lot of us don't see it at the moment."

Despite mistakes that are evident with flawless hindsight vision, some say regulators did a decent job, given the fact that the FDIC hadn't handled a bank failure of that scale in well over a decade. And, depending on how successful loan-modification efforts are, the FDIC may not lose money on IndyMac at all.

"They had to get back up to speed for handling institutions that large," says Lynyak. "They did the best they could in a terribly complicated situation, and have actually done much, much better in the subsequent failures. They learned something from IndyMac."

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