One thing that’s not clear to us is why retail FDIC-insured banks experience bank runs. Now it’s one thing for an investment bank, or a bank with plenty of high net-worth individuals without FDIC-backed accounts to experience this. Their customers don’t have a safety net.
Nonetheless, according to a new, investigative report in the Seattle Business Journal (via Rolfe Winkler) it’s clear that WaMu really did experience a straight up run. We know this news will disappoint longsuffering WaMu investors who still believe their bank was gifted to JPMorgan (JPM), but it’s not true. The customers panicked and the bank failed.
On Sept. 11, Moody’s issued its rating: It downgraded WaMu’s debt to junk status, rated the company’s financial strength at D+ and issued a negative outlook on the company, citing its asset quality and the potential for future losses. Freilinger, WaMu’s assistant treasurer, fielded the call from Emrick, and had the thankless task of checking the accuracy of Moody’s forthcoming press release. Freilinger’s heart sank. “No bank of our size anywhere in the world survives without an investment grade rating,” he recently said.
The downgrade roared across the country. WaMu customers, reminded once again that their money might not be safe, pulled $600 million out of WaMu that day. “That’s when we thought, ‘Oh, crap, here we go again,'” said one WaMu manager who monitored deposits.
Soon, other rating agencies followed suit, sparking another massive bank run that would ultimately become the reason FDIC officials gave for closing WaMu.
In the next three days, customers pulled another $2.3 billion out of WaMu.
This is also interesting:
Bair also told [then CEO] Fishman another intriguing piece of information: She said more than one bank had called the FDIC to ask whether there would be an opportunity to buy WaMu as a distressed asset, according to people familiar with the meeting. In other words, was the government planning to seize and sell the bank? If so, potential buyers would rather wait, for the price was sure to be lower in a government sale.
So once it became obvous that WaMu would be a failed bank, efforts to execute a straight-up sale became impossible, as everyone figured they’d get it from the FDIC, which is basically what happened.
As for the details of a modern-day, retail bank run, they’re pretty wild. Let’s just say it’s a lot different than what it looked like in “It’s a Wonderful Life.”
A longtime customer in Orange County brought a cake to her branch that spelled out in frosting, “We love you WaMu,” and then closed her account. Another customer at a branch in Southern California withdrew all her money and then, feeling guilty, returned the next day with a freshly baked peach cobbler for the branch’s staff, according to a former WaMu manager. Her money, however, stayed away.
Each day, Brinks Security trucks pulled up to replenish WaMu ATMs across the country. Before the crisis, the trucks delivered about $30 million in cash a day nationwide, Freilinger said. During the September bank run, they delivered as much as $250 million a day.
To make it really stark, The Seattle Business Journal put together these day-by-day charts. The top one represents the bank’s final days. The second is the mini-run it experienced earlier in the summer when IndyMac failed.