Difference between Washington Mutual vs Wachovia bank failures back in 2008


Washington Mutual bank collapse back in 2008 is considered as the largest bank failure in U.S history. I would like to know why Wachovia bank collapse that happened at the same time is not considered as a bank failure. Because technically it would have been the largest ever, because Wachovia also failed and it was larger than WaMu by asset size at the time of the failures.

From my understanding, during the Washington Mutual collapse, Chase came and scooped up it’s assets where as in Wachovia’s collapse Wells Fargo merged with Wachovia.
Is that the difference?

Because it almost seems like what Wells Fargo did was purchasing Wachovia than a merger of equals (Wachovia and Wells Fargo) because Wachovia’s name just vanished altogether after the merger.

Additionally, considering both Washington Mutual and Wachovia couldn’t run their day to day operations, how come only Washington Mutual is listed as a bank failure (largest ever) and Wachovia is not even on the list.

In: 8

Washington Mutual ran out of cash *without a bank run occurring*. If you wanted to withdraw your money from the bank, they quite literally had no way to allow you to do that. But that lack of cash was due to the company running at a huge loss for a long time, not as a result of a bunch of people rushing to the bank and trying to withdraw funds.

Wachovia never ran out of cash and wasn’t in a particularly bad situation prior to Washington Mutual collapsing. When Washington Mutual collapsed, institutional investors started trying to guess who would be next. Wachovia had lost a significant amount of money the previous quarter, and while its financial position was fine, institutional investors pulled about 1% of the bank’s total deposits out of the bank on Friday, 9/26/08.

The FDIC saw that huge 9/26/08 withdrawal and assume that a bank run would occur Monday morning. It then politely tried to get Citigroup to buy Wachovia over the weekend, but both Citigroup and Wachovia resisted the sale. Wachovia resisted because of its good liquidity situation, while Citigroup resisted because Wachovia wasn’t profitable in the short term (though it was in the long term).

As the weekend dragged on, more institutional and corporate depositors at Wachovia became aware of both the 9/26/08 withdrawals, as well as the FDIC’s attempts to broker a sale. Early Monday morning, the FDIC became aware that nearly all of Wachovia’s major intuitional and corporate depositors were planning on withdrawing most of their funds from the bank, *despite its overall good financial situation*.

The FDIC alerted Wachovia and Citigroup to what was about to happen, and very strongly told them to accept the sale, which they did. Wachovia remained open for business, Citigroup announced that it was guaranteeing deposits at Wachovia, and the FDIC announced that it would cover any losses Citigroup had above a certain amount that were the result of the acquisition.

That announcement calmed the organizations that were planning on pulling their deposits out of Wachovia, and the bank run never occurred. Because the bank run never occurred, Wachovia remained in good financial shape.

Citigroup wasn’t the only bank the FDIC had approached in trying to broker a sale of Wachovia – they had also approached Wells Fargo, who declined to buy the bank because they didn’t think they could absorb a run on Wachovia’s deposits. As a result of the FDIC’s negotiations, Wells Fargo got a lot of otherwise non-public information on Wachovia’s internal finances – which were quite good.

When the bank run on Wachovia never materialized, Wells Fargo approached Wachovia and offered them a much better deal than Citigroup was offering, ultimately causing the Citigroup purchase to fall through and for Wachovia to merge with Wells Fargo.

Wachovia didn’t fail.

WaMu failed in mid-September 2008 due to a bank run; the bank was seized by the federal government and placed in receivership. This was relatively early in the bank-failure part of the financial crisis (Lehman Brothers, which was sort of the first of the big failures that fall, was only 10 days earlier). The same dynamic took a huge chunk off Wachovia too and it was likely headed for failure but, by that point, the federal government was taking a *much* more aggressive role in keeping the financial system afloat (partly because of failures like WaMu).

*If* Wachovia had failed, as you note, it would have dwarfed WaMu’s failure. Wachovia fell in “too big to fail” territory…keeping Wachovia alive was more important to the health of the overall financial system than letting it fail. It was the first bank during the financial crisis that the feds said they’d save at any cost. They basically forced them to sell, first to Citigroup, then later a side deal was brokered with Wells Fargo instead.

So, technically, Wachovia never failed because Citigroup & Wells saved it before it actually failed, in a banking sense.