Washington Mutual Failure


The Washington Mutual Bank Failure


In September 2008, California based Washington Mutual (WAMU) was seized by Federal regulators and sold to New York based J.P. Morgan Chase after a three quarter loss totaling over $6.3 billion dollars. Ineffective management controls and poor lending standards were the major causes of the savings and loan failure. The bad loans and ineffective lending not only hurt Washington Mutual and their shareholders, it also had a very negative impact on home owners given home loans they could not afford which ended in foreclosures. This was the largest bank failure in the United States history.

For over 18 months after the bank seizure a U.S. Congressional team and the Federal Deposit Insurance Corporation (FDIC) investigated the failure of Washington Mutual.   Unfortunately, they put in place an incentive plan that rewarded employees for closing and originating loans based on volume, the quality of the loans were irrelevant.   There were a number of unethical business practices the CEO and the management team was guilty of which filtered down to most of the banks employees.  

Organizational Behavior Theories

As referenced in the article (Smith, & Sidel, (2010), respectable successful business will strive to establish ethics within their organization that must be communicated and enforced by senior management, and followed by employees at every level.   Companies make many statements about what is ethical, but unless the ethical rules are written and followed, they are not practiced and to some extent, remain a matter of personal opinion.   This is clearly the reason WAMU failed, poor business ethics and a lack of an effective organizational structure and leaders.   This was a perfect example is the business of commercial and personal banking where poor leadership contributed to the failure of a very large organization.   Personal and commercial bankers are employed to represent the bank and serve their...