The Lost Bank: The Story of Washington Mutual, the Biggest Bank Failure in American History
The only full account, by the local reporter who covered the collapse.
Summary
Kirsten Grind covered Washington Mutual for the Puget Sound Business Journal and won awards for that reporting. This book reconstructs the bank's rise and its failure in September 2008, which remains the largest bank failure in American history.
The institutional history covers the bank's origins as a Seattle savings institution, its transformation under Kerry Killinger through serial acquisitions during the 1990s, and its positioning as a consumer-friendly alternative to large banks. Grind then documents the shift in lending: the growth of option adjustable rate mortgages and subprime lending through the Long Beach subsidiary, the compensation structures that paid loan officers more for riskier products, the underwriting deterioration, and the internal warnings from risk officers that were overruled or ignored.
The failure narrative covers the deposit run in September 2008, in which roughly seventeen billion dollars left in about ten days; the seizure by the Office of Thrift Supervision and the sale of the banking operations to JPMorgan Chase by the Federal Deposit Insurance Corporation, which wiped out bondholders and shareholders including a recent private equity investment; and the disputes about whether the bank was solvent and whether the seizure was necessary. Grind reports both the regulatory position and the shareholders' argument. The book is well reported and is the standard account. Its treatment of the internal risk management overrides is the material most useful to a bank investor.
Key takeaways 7
- Washington Mutual's compensation structure paid loan officers more for originating riskier mortgage products than safer ones.
- Internal risk officers warned about underwriting deterioration and were overruled or removed.
- The Long Beach subsidiary originated subprime loans whose performance was known internally to be poor well before the crisis.
- Roughly seventeen billion dollars of deposits left in about ten days, which is what forced the seizure.
- The Federal Deposit Insurance Corporation sold the banking operations while leaving bondholders and shareholders with nothing.
- Whether the bank was solvent at the time of seizure remains disputed, and Grind presents both positions.
- Serial acquisition during the 1990s left the bank with systems and portfolios its management could not see clearly.
Who should read it
Bank investors and risk professionals who want a detailed account of how origination incentives and overruled risk management destroyed a large institution.
Where it sits in the reference 2
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