Fear of failure

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: Chip MacDonald of Jones Day, a law firm, it is also likely to be the most expensive. The FDIC reckons that the costs of cleaning it up will be between $4 billion and $8 billion, a big chunk of the agency’s $53 billion deposit-insurance fund. Coincidentally, the ratio of FDIC’s fund to the total amount of insured deposits is similar to the capital ratios set aside by Fannie Mae and Freddie Mac. Riskier banks will be asked to pay more in order to top the pot up, another drag on earnings.

Don’t run, run, run

The second lesson of IndyMac is that it underlines the speed with which banks can go under once confidence in them is lost. Plenty of analysts thought the bank was in severe trouble, but the government’s hand was forced by massive outflows of deposits that were themselves triggered by a public letter from Chuck Schumer, a spotlight-loving senator, expressing concerns about IndyMac’s health. Regulators did not bother to disguise their irritation with Mr Schumer’s intervention, but they cannot ignore the broader message: a lack of liquidity kills.

The third message from IndyMac is that the well of capital for ailing banks is not inexhaustible. Before it went under, the lender admitted that its efforts to shore up capital had come to nothing. Small regional banks, less diversified than their larger brethren and more exposed to riskier asset classes such as home-equity lines of credit and commercial real estate, are most at risk of running out of capital-raising options. That moment may now be arriving.

Estimates of the numbers of bank failures are rising as a result. Gerard Cassidy of RBC Capital Markets reckons that up to 300 banks are likely to fail over the next three years, compared with just three during 2007. This number is less frightening than it sounds. More than 1,000 banks failed at the height of the savings and loans crisis in the late 1980s. “There are 8,000 banks in America and most people haven’t heard of 7,950 of them,” says Fred Cannon of Keefe, Bruyette & Woods.