Ho-Hum… America’s Largest Bank Failure
photo credit: James Callan
With barely a whimper, WaMu is no more. It also is the largest bank failure in US history.
As they say, it’s not over till it’s over. I’d bet on more to follow in the next couple of weeks.
By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail, predicts Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based firm that sells its analysis of FDIC data to investors.
“It’s not going to be Armageddon,” says Mark Vaughan, a financial economist at the Federal Reserve Bank of Richmond, Virginia and a senior lecturer in economics at Washington University in St. Louis. “But it’s going to be bad.”
From August 2007 to September 2008, banks worldwide wrote down more than $500 billion. Regional banks, by contrast, have waited to write off their bad mortgages, hoping the housing market would improve and defaults would level off.
Instead, they’ve risen.
Unfortunately, we’re only starting to hear the the bad news.
Washington Mutual, the largest U.S. savings and loan, was closed by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver.
The bailout came after the thrift suffered deposit outflows of $16.7 billion since September 15, the OTS said.
“With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business,” the OTS said.
The transaction ends exactly 119 years of independence for Washington Mutual, whose predecessor was incorporated on September 25, 1889.
It also follows more than a week of sale talks in which Washington Mutual attracted interest from several suitors.
Washington Mutual’s roughly $227 billion book of real estate loans put the thrift at the top of the critical list of U.S. lenders, analysts said. More than half of this portfolio was in home equity loans and in adjustable-rate mortgages and subprime mortgages that are now considered risky.
