This presentation will represent indymac bank.

2. Presented To:
Md. Sagar Rana
Assistant Professor,
Department of Banking and
Insurance.
Presented By:
1.Zidan Mollik(15)
2.Shamima Sharmin(16)
3.Shakib Shahariar(25)
4.Md. Arif Hossain(30)
5.Anamika Paul antu(40)
6.Tamara Tasnova(42)
7.Sefatul Kabir Shuvo(46)
8.Ayrin Akter Asha(56)
Group – 06

3. Introduction
Bank failures have been happening for a long time. Between 1934 and 2007, there
were only two years without any bank failures. In the 1990s, during the savings and
loan crisis, banks were failing almost every day. One of the largest failures during
this time was IndyMac Bank in California. Despite attempts to change their business
model, relying more on thrift branches, IndyMac's stock price continued to fall,
leading to concerns about its survival. Senator Charles Schumer raised public
concerns about IndyMac's stability in letters to financial institutions. When these
letters became public, there was a rush of people withdrawing money from
IndyMac, leading to its failure and the FDIC taking over. This presentation will
explore the reasons behind IndyMac's failure, including market conditions, the
bank's response, and external pressures.

4. Bank Details
• IndyMac, a contraction of Independent National Mortgage Corporation, was an
American bank based in California that failed in 2008 and was seized by the
United States Federal Deposit Insurance Corporation (FDIC).
• Before its failure, IndyMac Bank was the largest savings and loan association in
the Los Angeles area and the seventh largest mortgage originator in the United
States.
• The failure of IndyMac Bank on July 11, 2008, was the fourth largest bank failure
in United States and the second largest failure of a regulated thrift at that time.
"Mac" is an established contraction for "Mortgage Corporation", usually
associated with government sponsored entities such as "Freddie Mac" (Federal
Home Loan Mortgage Corporation) and "Farmer Mac" (Federal Agricultural
Mortgage Corporation).

5. • IndyMac, however, had always been a private corporation with no relationship to
the government. It was heavily involved in Alt-A mortgages and reverse
mortgages which in part resulted in its dramatic rise and has been suggested as the
cause for its demise, as many these questionable loans failed during the U.S.
subprime mortgage crisis of 2007–2009.
• The FDIC put the assets up for auction and the bulk of the business was sold to
IMB Holdco LLC who turned this into One West Bank. The FDIC kept some of
the assets and liabilities that it could not sell in a holding entity known as IndyMac
Federal Bank, which would be slowly wound down. IndyMac Bank was founded
as Countrywide Mortgage Investment in 1985 by David S. Loeb and Angelo
Mozilo as a means of collateralizing Countrywide Financial loans too big to be
sold to Freddie Mac and Fannie Mae.
• In 1997, Countrywide spun off IndyMac as an independent company run by Mike
Perry, who remained its CEO until the downfall of the bank in July 2008.
Bank Details

6. Timelines
The Federal Deposit Insurance Corp. said IndyMac would re-open
Monday as IndyMac Federal Bank. The FDIC has a "problem list"
with about 90 banks they worry about but IndyMac was not on this
list!
The FDIC estimates it will cost $4B to $8B to make FDIC insured
IndyMac depositors whole. According to Dow Jones MarketWatch,
IndyMac bank, with $32 billion in total assets, is the fifth bank to
fail so far this year and one of the largest bank failures ever. Chris
Thornberg, of Beacon Economics, says many banks books don't yet
fully reflect all the problem loans. RBC capital says as many as
300 banks may fail.

8. It is a lesson why we recommend you have all your CDs in banks that have FDIC insurance.
Do not exceed FDIC limits to get the top rate. If you have more than the FDIC limit, then spread your
money between many banks and accept a lower return so that each separate account at each bank has
FDIC insurance. You are not being compensated for the extra risk of bank failure to have more than
the FDIC limit for accounts.

9. Timelines of Major Events
• In the 90s, during the savings and loan crisis, banks were failing almost every day.
One of the largest failures during this time was IndyMac Bank in California. The
failure of IndyMac Bank on July 11, 2008, was the fourth largest bank failure in
United States and the second largest failure of a regulated thrift at that time and
was seized by the United States Federal Deposit Insurance Corporation (FDIC).
• IndyMac, however, had always been a private corporation with no relationship to
the government.
• Despite having $45 billion in reserves before IndyMac's failure, the FDIC expects
to lose $40 billion by 2013, almost wiping out its reserves.
• Failure reasons are: High Risk Business Strategy and Aggressive Growth, Lack of
Core Deposits, Inadequate Loss Reserve, Unsound Underwriting Practices.

10. Reasons of Failure
 High Risk Business Strategy and Aggressive Growth.
 Lack of Core Deposits.
 Inadequate Loss Reserve.
 Unsound Underwriting Practices.

11. High Risk Business Strategy and Aggressive Growth
From the time IndyMac Bank transformed from a real estate investment trust into a savings and loan
association in July 2000, IndyMac embarked on a path of aggressive growth. Chart 1 below show
,it’s aggressively grew its assets from $5 billion to over $30 billion between mid-2000 and early 2008
by originating or purchasing loans and selling them on the secondary market.

12. Chart 2 below shows the loan production for IndyMac from inception through 2008, during which
time it generated about $10 billion in loans in 2000 to a high of $90 billion in 2006.

13. They offered a variety of nontraditional mortgage products, such as option ARMs,
which carried increased borrower default risks. Despite initially high profits, these
loans became riskier over time, especially with less documentation required for
origination. Signs of borrower distress emerged by mid-2005, exacerbated by the
collapse of the secondary market in late 2007, leading to a significant increase in
delinquent loans by May 2008, ultimately contributing to IndyMac's downfall.

14. Lack of Core Deposits
IndyMac Bank didn't have many retail branches to attract deposits, so it relied heavily on borrowing
money from other sources like the Federal Home Loan Bank (FHLB), the Federal Reserve, and
foreign banks. By September 2006, it owed over $9 billion to the FHLB alone, which was a big
chunk of its total assets. This raised concerns among regulators because it was higher than what
similar-sized banks typically owed. The situation didn't improve by March 2008, and IndyMac
started borrowing more from deposit brokers when the market for its loans went downhill in August
2007.

15. Inadequate Loss Reserves
OTS, consistent with generally accepted
accounting principles, requires thrifts to set
aside an adequate Allowance for Loan and Lease
Losses (ALLL) for probable loan losses resulting
from delinquencies. As early as 2004, IndyMac
senior management began observing the
probability of a downward trend in real estate
values, which could reduce the collateral
supporting loans and result in possible loan
losses. Regardless, IndyMac’s ALLL decreased as
a percentage of the thrift’s total loans until
2007 when it finally increased its ALLL because
it began to experience losses in its loan

16. Inadequate Loss Reserves
During early 2008, IndyMac hired an independent
public accountant (IPA) to review the ALLL
compliance methodology. The IPA found
weaknesses with the thrift’s ALLL policy. Various
business units were inconsistently calculating
their own ALLL and senior management did not
provide detailed guidance on how they expected
the divisions to develop historical losses, look-
back periods, and baseline factors. The ALLL is
critical because of its impact on the thrift’s capital
levels. Based on OTS policy, when the ALLL
exceeds 1.25 percent of risk-weighted assets, it
must be excluded from the equation that measures
risk-based capital levels. As of March 31, 2008,
this amounted to a decline of 0.57 percent in total
risk based capital for the thrift, which was already
low at 10.26 percent.

17. Unsound Underwriting Practices
IndyMac encouraged the use of nontraditional loans. IndyMac’s underwriting
guidelines provided flexibility in determining whether, or how, loan applicants’
employment, income, and assets were documented or verified. The following
procedures were used by the thrift:
 No doc: income, employment, and assets are not verified.
 No income/no assets (NINA): income and assets are not verified; employment is
verbally verified.
 No ratio: no information about income is obtained; employment is verbally
verified; assets are verified.
 Stated income: income documentation is waived, employment is verbally
verified, and assets are verified.
 Fast forward: income documentation is sometimes waived, employment is
verbally verified, and assets may or may not be verified.

18. To explore the impact of thrift underwriting on loan performance, we reviewed 22
delinquent loans that represented a cross-section of the loan products in IndyMac’s
loans held to maturity portfolio. These loans were 90 days or more delinquent as of
August 31, 2008. We reviewed the loan files and discussed the loans with IndyMac
officials who were retained by FDIC in the conservatorship. For the loans reviewed,
we found little, if any, review of borrower qualifications, including income, assets,
and employment. We also found weaknesses with property appraisals obtained to
support the collateral on the loans.
For example, among other things, we noted instances where IndyMac officials
accepted appraisals that were not in compliance with the Uniform Standard of
Professional Appraisal Practice (USPAP). We also found instances where IndyMac
obtained multiple appraisals on a property that had vastly different values.
Unsound Underwriting Practices

19. In addition to the continuing run and allegations of botching the takeover, there was
one other irregularity of the IndyMac failure: a federal investigation of fraud.
Anonymous sources reported to CNN that the FBI was looking into "whether the
bank engaged in fraud when it made home loans to high-risk borrowers.', 15 While
the FBI did not specifically confirm it was investigating IndyMac, it did note that it
was "investigating twenty-one corporations in the subprime lending market for
possible mortgage fraud.' ' 186 CNN's sources confirmed the investigation was
targeted at the company itself, not any individuals.'87 At the time this Note was
written, there had been no further developments or public comments about the FBI's
investigation.
Unsound Underwriting Practices

20. Lesson Learnt
1.IndyMac's failure raises concerns about the stability of
other banks like Washington Mutual and Wachovia, indicating
it may just be the beginning.
2. The FDIC's handling of the failure questions its ability
to communicate effectively with the public and ensure
depositors' money is safe.
3. Despite having $45 billion in reserves before IndyMac's
failure, the FDIC expects to lose $40 billion by 2013, almost
wiping out its reserves.
4. With 13 bank failures and 117 problem banks, the FDIC's
reserves are barely meeting the minimum required, leading to
a likely doubling of premiums for member banks.
5. The effectiveness of IndyMac's new business model and the
possibility of future bank failures remain unanswered.
6. Senator Schumer's letters may have prevented troubled

21. Thank You