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Did Schumer Cause a Bank Run?

Since we’re on the subject of IndyMac today, it seems the troubled lender - the subject of a scathing report just issued by the Center for Responsible Lending over its lending practices and the target of speculation that it’s about to implode - also experienced a minor bank run over the weekend. IndyMac’s not blaming the run on the fact that it lost $184.2 million in the first quarter of this year, compared to a profit of $52.4 million just a year earlier. Nope, that has nothing to do with it, the bank says. There’s another culprit - Sen. Charles Schumer of New York.

A posting on the bank’s internal blog says letters that Schumer sent to federal regulators last week, urging them to monitor the lender closely and warning of risks to taxpayers should bank collapse, spurred the bank run. Depositors withdrew about $100 million on Friday and Saturday after Schumer’s letter to regulators became public, the bank’s communication director wrote. Customers lined up at San Gabriel Valley branches to get their money, the Los Angeles Times said:

Rick McPherson, 64, said he grew worried after hearing news reports that IndyMac was struggling, and withdrew $1,000 he had at IndyMac.

“I’m not certain what happens when a bank fails,” said McPherson, a printer from Arcadia. “I don’t trust the economy right now.”

It’s somewhat unusual for a senator who leads a subcommittee that oversees the Federal Reserve to say out loud that he’s worried a specific bank might go under. Schumer might want to think twice next time, since the goodwill he hoped to reap for pressuring regulators has backfired a little. Still, it’s hard to blame him for all of this. IndyMac isn’t the only lender struggling right now, and there are a lot of concerns about bank failures. That, more than anything, explains why some customers wasted no time in taking their money out.

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