IndyMac costing feds more than expected

The Los Angeles Times is reporting this morning that the IndyMac bank takeover will cost the federal government $8.9 billion. The money goes to all the account holders who had accounts that were insured by the government's banking insurer, the FDIC (generally accounts that are under $100,000 in value).

The problem, says the paper, is that the FDIC underestimated how much money were in the insured accounts.... their original estimate was between $4 and $8 billion.

Other bad news from the paper:

The disclosures were part of a bleak portrait of the banking industry painted by the agency, which said earnings at commercial banks and savings and loans plunged 87% to $5 billion in the second quarter as institutions scrambled to cover bad mortgages and other loans.

"Quite frankly, the results were pretty dismal," FDIC Chairwoman Sheila C. Bair said at a news conference. Aside from the fourth quarter of 2007, bank earnings were at their lowest since 1991.

Historically, about 13% of banks on the problem list fail. But Bair predicted the list would grow.

"We don't think this credit cycle's bottomed out yet," she said.

This year nine banks with total assets of $40 billion have failed, according to the FDIC.