Hundreds of people desperate to withdraw money lined up outside the branches of IndyMac Bancorp after the California bank was seized in...

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Hundreds of people desperate to withdraw money lined up outside the branches of IndyMac Bancorp after the California bank was seized in July by the Federal Deposit Insurance Corp.

FDIC officials were stunned. The bank now belonged to the federal government. The deposits were insured by the FDIC. Bank runs were supposed to end once the government arrived.

“It had just been so long since there had been a significant bank failure in the U.S.,” FDIC Chairwoman Sheila Bair said. “People had just forgotten that banks fail.”

And, she added, they had forgotten about the FDIC.

More than three months later, Bair and her agency have moved to the forefront of the government’s response to the financial crisis working alongside Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. A wide range of observers say the FDIC’s recent actions may offer the best hope for limiting the consequences of the crisis. Bair’s role in trying to solve the credit crisis has impressed Democrats on Capitol Hill.

“She’s going to be Treasury secretary someday,” said Tim Adams, a former department undersecretary under President Bush who worked with Bair when she was an assistant secretary.

Bair should supervise and coordinate the federal response to “the foreclosure crisis that continues to undercut economic recovery,” Rep. Barney Frank of Massachusetts and Rep. Maxine Waters of California, both Democrats, wrote in a recent letter to Bush. The lawmakers said they have been “very impressed” with Bair’s loan-modification efforts.

The takeover of government-sponsored mortgage companies Fannie Mae and Freddie Mac, and the $700 billion bank-rescue plan brokered by Bair and signed by Bush, position the government to “maximize foreclosure mitigation,” Frank and Waters wrote.

Creating a position giving Bair greater responsibility “would improve the effectiveness of the efforts of the federal government at a time when prompt and efficient action is most needed,” they wrote. The plan would not require Bair to leave her FDIC post, said Steve Adamske, a spokesman for Frank.

A wide range of people who have worked with Bair, who took over the FDIC in 2006, describe her as well-suited to the challenge.

They say she is principled and blunt without being confrontational. She has the talent, more often observed in diplomats than in banking regulators, for simultaneously communicating opposition to an idea and personal warmth for the holder of the idea. And she knows how to make a deal.

Martin Eakes, chief executive of the Center for Responsible Lending, which seeks stricter mortgage regulations, described a meeting organized by Bair in early 2007 and attended by consumer advocates and mortgage executives.

“There were some really heavy egos around that table, people with 30 and 40 years’ experience in the minutia of mortgage loans, and she just moved that group in a way that I marvel at,” Eakes said. “Had I pushed the same issues, I would have had everybody screaming at me.”

Nonetheless, Bair’s relationship with the banking industry has sometimes been rocky. Bankers, subject to Bair’s authority, are reluctant to talk about her publicly. Her first action at the FDIC was to raise the premiums banks must pay to insure deposits, an inherently unpopular idea.

Bair, 54, who is married and has two children, was born in Wichita and went to the University of Kansas for a degree in philosophy and then for law school. Then she moved to Washington, D.C., to work for Sen. Bob Dole, R-Kan. One of her fellow staff members was Joshua Bolten, who would become chief of staff to Bush. Bair left Washington, D.C., intending to return. She unsuccessfully ran for a U.S. House seat in southeastern Kansas in 1990.

She spent the go-go 1990s working in the financial markets, as a regulator at the Commodity Futures Trading Commission and then as a lawyer at the New York Stock Exchange.

Then, in 2006, she was called back to D.C.

At the time, the FDIC was seen by observers as a Maytag agency. It had been two years since the last bank failure, the longest quiet stretch since the agency was created in 1933. Hundreds of FDIC employees had been laid off. Many banks were no longer required to pay insurance premiums because the money wasn’t needed.

Bair, however, soon decided that the sleepy days were ending. Old friends told her that aggressive lending practices were no longer a danger only to consumers but also to the industry. At Bair’s direction, regulators bought a database of information about securitized loans. They saw an alarming pattern of disregard for traditional underwriting.

By the spring of 2007, Bair was arguing with vigor, first in private meetings and then in public speeches, that the industry needed to modify loans on a massive scale — not only to help customers avoid foreclosure but also to help companies avoid the consequences of those foreclosures.

Even many of Bair’s critics applaud her recent performance. In September, the FDIC took over Seattle-based Washington Mutual and sold it to JPMorgan Chase and the FDIC brokered a deal to sell Wachovia to Citigroup that eventually fizzled. The two deals, involving banks with more than $1 trillion in assets, could cost the government nothing.

To seal the Wachovia deal, the FDIC agreed to absorb any losses above $42 billion on a portfolio of Wachovia’s most troubled loans in exchange for a $12 billion stake in Citigroup. (Wells Fargo outbid Citigroup a week later.)

Experts say that combination of shared risk and shared reward offers a model for dealing with other troubled banks.

Information from Bloomberg News

is included in this report.