Concerns about the current financial and economic crises worsened on Friday when U.S. federal regulators siezed IndyMac Bank. This even marks the third largest bank failure in U.S. history and the largest in more than two decades.

IndyMac was one of the most active lenders during the housing boom and is now the largest to fail since home prices began to plunge last year. More bank failures are expected as home prices continue to decline.

The bank’s collapse is expected to cost the Federal Deposit Insurance Corp. (FDIC) between $4 billion and $8 billion, according to the Wall Street Journal. The loss could potentially wipe out more than 10% of the $53 billlion deposit-insurance fund.

In an interesting twist on the collapse, John Reich, the director of the Office of Thrift Supervision, is blaming IndyMac’s failure on Democrat Senator Charles Schumer of New York. The senator sent a letter to the regulator raising concerns about the bank’s solvency, leading to a $1.3 billion run on the bank.

IndyMac was one of the biggest lenders of the so-called “Alt-A” mortgages which often did not require borrowers to document their income and/or assets. As loan defaults began to pile up, the bank’s finances rapidly deteriorated. As of last week, the bank had approximately $19 billion in assets, nearly $1 billion of which were not insured by the FDIC.

The collapse will likely be felt across the entire banking industry. The FDIC could increase insurance fees to other banks to help re-build the deposit fund. If fees do go up, look for credit to continue to tighten as banks feel the pressure on profits.

Tags: bank collapse, economic conerns, fdic, IndyMac