US Economy: Investigators Target Home Loans at Failed California Bank

The FBI is investigating possible fraud at IndyMac Bancorp, the California institution which was seized by regulators on Friday in America's biggest high-street bank failure for two decades.

Law enforcement sources told the Associated Press that the probe revolves around home loans made by IndyMac to risky borrowers and is focused on the bank itself, rather than on individuals who ran it.

The FBI declined to comment on IndyMac specifically, although a spokesman said the scope of the bureau's examination of the subprime mortgage industry had broadened from 19 investigations to 21 since April.

A spokesman said: "The FBI currently has 21 investigations related to the subprime industry. We receive information from a variety of sources on a daily basis, and we have an obligation to review each allegation on its merits."

Banking regulators took over IndyMac after a run on deposits as customers withdrew $1.3bn from IndyMac in ten days. At its peak, IndyMac had assets of $32bn.

Under a federal insurance scheme, the first $100,000 held by any depositor is guaranteed. But anxious customers have continued forming long queues outside branches to take out their savings this week.

The Los Angeles Times reported today that the police were called to control unrest at one IndyMac branch.

In some cases, customers have been waiting for as long as three days. Staff have been providing plastic chairs and water in scenes reminiscent of the run on Britain's Northern Rock.

The Pasadena-based bank is the fifth US bank to close this year but is the biggest failure since a Chicago bank, Continental Illinois, collapsed in 1984. An estimated 10,000 customers are in danger of losing unprotected deposits of some $1bn.

A New York senator, Charles Schumer, has come in for criticism from regulators over IndyMac's demise. He wrote a public letter raising concerns about lax lending standards at the bank in late June which the office of thrift supervision blamed for inciting panic among customers.

Schumer argues that the OTS is responsible for allowing IndyMac to become vulnerable in the first place.

IndyMac's demise has prompted jitters about the stability of other regional banks.

Two large players ? Seattle-based Washington Mutual and Ohio-based National City Corporation ? were obliged to issue statements denying liquidity crises this week after their shares suffered dramatic plunges.