IndyMac's fate could test banking regulators

By Karey Wutkowski and Rachelle Younglai

WASHINGTON (Reuters) - Deeply troubled mortgage lender IndyMac Bancorp Inc IMB.N may have bought some time through sharp cuts in operations and selling some branches but its survival remains in question, creating a major test for banking regulators.

In particular the significant size of IndyMac's deposits that are insured by the Federal Deposit Insurance Corp might present a challenge. If the deposits, which total more than $17 billion, had to be guaranteed, that could temporarily dent the FDIC's war chest of around $53 billion.

IndyMac said this week it was unable to raise new capital, would slash staff by 60 percent, and had stopped making most home loans. Its shares have sunk to 38 cents, with one analyst forecasting they will be worthless.

Major victims of the credit crisis to this point have either been the subject of rescues by bigger banks, as in the case of mortgage lender Countrywide and investment bank Bear Stearns, or weren't major deposit-taking entities.

The FDIC insures up to $100,000 per deposit account and up to $250,000 per retirement account at insured banks.

But even if the FDIC had to step in and be responsible for IndyMac's insured deposits, the agency's fund wouldn't take a hit equal to the amount of those deposits.

"Clearly they wouldn't be on the hook for all of that," said Ann Graham, a law professor at Texas Tech University and former FDIC official.

She said that if IndyMac closed, the FDIC could arrange to have another institution pay to acquire the good assets.