BY ANTONY CURRIE

The collapse of a Pasadena mortgage lender with 33 branches sounds like an odd choice for one of the seminal moments of 2008. Plenty of far bigger, more complex and consequential institutions hit the wall during that tumultuous year – from Lehman Brothers to AIG to Fannie Mae and Freddie Mac. IndyMac, which failed 10 years ago on Wednesday, wasn’t even the largest thrift or retail-bank downfall. And another 460 went under by the end of 2012. Yet its fate resonates in Donald Trump’s deregulatory era.

The most obvious reason is Treasury Secretary Steven Mnuchin. He gathered together the group of private-equity firms which six months later bought the bank’s assets out of conservatorship at the Federal Deposit Insurance Corp for around $1.3 billion. He also served as chairman and, initially, chief executive. Five years later, the investors sold it for $3.4 billion. That made the buyer, CIT, the first bank to cross the $50 billion asset threshold regulators had set to denote systemically important institutions. Mnuchin bagged over $100 million. That’s around a third of his current net worth, according to Forbes.

The other is Joseph Otting, who Mnuchin hired as chief executive of OneWest, IndyMac’s new name. He’s now a top U.S. bank regulator, serving as the comptroller of the currency. The 2009 deal with the FDIC became the template for other such sales. Current Commerce Secretary Wilbur Ross, for example, was one of the buyers of BankUnited, another lender that went bust a few months later.

IndyMac, though, offers a textbook case of why it’s not just the big banks which need alert regulators. It quickly grew to $32 billion in assets by selling risky mortgages and relied heavily on loans from the Federal Home Loan Banks and brokered deposits, both expensive. Throw in the worst watchdog of the lot – the now-shuttered Office of Thrift Supervision – and it couldn’t get much more chaotic.

Banks around this size, and even a bit bigger, are getting most of the regulatory relief from the White House and Congress. That’s understandable, to a degree: many of the post-crash rules targeted the mega-banks but snared their smaller cousins in bureaucracy.

But even the minnows can cause trouble. By the end of 2012, the failure of lenders that followed IndyMac into receivership had cost the FDIC more than $90 billion. That’s roughly what Washington spent on preferred stock to bail out Bank of America and Citigroup. Ensuring both types of calamities are avoided requires vigilant oversight across the entire banking industry.

First published July 11, 2018

(Image: REUTERS/Danny Moloshok)