Seeking to reassure a worried public, Treasury Secretary Henry M. Paulson Jr. said Sunday that the U.S. banking system was secure but other bank failures could follow the recent collapse of Pasadena-based IndyMac before the situation stabilized.
Beset by defaults on mortgages and a run on deposits beginning in late June, IndyMac was taken over by federal regulators 10 days ago, marking the second-largest financial institution failure in U.S. history.
Last week, thousands of depositors waited in line at local branches, some for several days, in panicked attempts to withdraw their funds. Many complained of problems with their records and confusions over which deposits were insured and for how much.
On Sunday, Paulson strove to assure consumers that their deposits were safe under Federal Deposit Insurance Corp. guarantees of up to $100,000 per account. "If you have an insured deposit, you're not going to lose a penny," said Paulson, who appeared on CNN's "Late Edition With Wolf Blitzer" and CBS' "Face the Nation."
Several thousand IndyMac depositors, though, apparently had accounts exceeding $100,000, and they may not have been fully insured depending on how the accounts were structured. The FDIC has said it would pay such customers 50% of the value of their uninsured deposits.
IndyMac was the fifth FDIC-insured institution to fail this year, and officials estimate its collapse will cost the FDIC $4 billion to $8 billion. The secretary said that future bank failures were a strong possibility.
"Of course, the list is going to grow longer given the stresses we have in the marketplace, given the housing correction," Paulson saidHe emphasized, though, that he expected only a small percentage of the 8,500 banks in the country to shut down.
Federal regulators keep a list of potentially troubled banks, but the file is not public. As for local institutions, banking sector analysts have expressed concern about Downey Savings, based in Newport Beach, and First Federal Bank of California, based near Playa Vista, because of their high proportions of defaulting and foreclosed loans.
As for the economy as a whole, Paulson pointed to three factors darkening the increasingly dire picture: declining home prices, troubled capital markets and soaring oil prices.
"We're going to be in a period of slow growth for a while. There's no doubt about that," Paulson said. "But our first priority today is the stability of the capital markets, the stability of the system."
