Wednesday, October 28, 2009

Report: The WaMu "Bank Run" Rumors were True

by Calculated Risk on 10/28/2009 03:17:00 PM

In July 2008 there were persistent rumors of a bank run at WaMu. According to a fascinating piece by Kirsten Grind at the Puget Sound Business Journal, the bank run was more than a rumor ...

From Ms. Grind: The downfall of Washington Mutual

To recreate WaMu’s final days, the Puget Sound Business Journal examined hundreds of pages of documents obtained through the Freedom of Information Act and interviewed dozens of former WaMu executives and employees, as well as government regulators and outside observers.
...
These interviews show that WaMu suffered through not one but two bank runs in its final months. ...

In early July 2008, hundreds of people lined up outside the headquarters of IndyMac Bank in Pasadena, Calif. ... Fearing the bank was on the verge of failure, customers were pulling out their money. The line stretched down the block. ...

Two blocks away, managers at a large, white-columned WaMu branch watched the commotion. Soon, their own customers began asking, “Is my money safe?”
...
Through a flurry of sometimes heated emails, managers ... worked out a rough plan. WaMu’s deposit team would forecast the potential size of a run, based on daily data about cash outflows. Branch managers would try to reassure anxious customers. ...

Despite these efforts, WaMu suffered a $9.4 billion run — seven times bigger than IndyMac’s. Southern California became the epicenter, although customers all around the country pulled out cash. Unlike IndyMac, however, WaMu executives kept the five-alarm fire under wraps. No lines formed down the block. No TV cameras splashed the news. Shareholders never knew, either.
emphasis added
There is much more in the article.

Ms. Grind also notes that the Inspector General is expected to release a report on the WaMu failure soon.