WaMu's risky lending led to failure, regulators say

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- The demise of Washington Mutual, the biggest bank failure in U.S. history, was due largely to a high-risk lending strategy pursued by the company's management, according to a government report released Friday.

The Treasury Department and the Federal Deposit Insurance Corporation also faulted the Office of Trust Supervision (OTS) for failing to adequately curb WaMu's risky activities.

"WaMu failed primarily because of management's pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls," according to the report.

Regulators said that strategy, combined with the housing and mortgage market collapse in 2007, resulted in huge losses for WaMu, drove its stock price down and prompted a rush of withdrawals by jittery depositors.

As a result, the OTS closed WaMu and the FDIC arranged for JPMorgan Chase to buy it in a closed bank transaction in September 2008.

While the OTS had raised concerns about WaMu's risky lending practices, the report found that the agency did not act aggressively enough and relied too heavily on WaMu's internal efforts to tighten up lending standards.

"OTS's supervision did not adequately ensure that WaMu corrected those problems early enough to prevent a failure of the institution," the report said.

The report came days after Kerry Killinger, who ran the Seattle-based thrift for 18 years, told lawmakers that WaMu was "unfairly" seized.

In testimony before a Senate committee, Killinger argued that WaMu's failure was not due to the bank's involvement in the housing market. Instead, he claimed that WaMu's seizure was part of a conspiracy protecting the biggest banks -- those who were "too clubby to fail" -- at the expense of all the others.

"In my view, the actions taken by policymakers reflect a vision of a banking industry dominated by large Wall Street banks," Killinger said in his prepared remarks. "I fear that consumers will ultimately pay the price of this vision through less competition, higher fees, and lower interest rates on their deposits." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 11:09pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.