On September 25, 2008, the Federal Deposit Insurance Corporation (FDIC) took over the operations of Washington Mutual Bank (WaMu) and sold the majority of its assets to JPMorgan Chase & Co. as part of a purchase and assumption agreement.
The FDIC is an independent agency of the federal government that provides deposit insurance to protect depositors in the event of a bank failure. When a bank is declared insolvent, or unable to meet its financial obligations, the FDIC is authorized to step in and take control of the bank`s operations.
In the case of WaMu, the bank had been struggling for some time due to bad loans made during the housing boom. On September 15, 2008, Lehman Brothers declared bankruptcy, which triggered a wave of panic in the financial markets. Customers began withdrawing their deposits from WaMu, causing the bank to experience a liquidity crisis.
In response, the FDIC stepped in and took control of WaMu`s operations. The agency immediately began marketing the bank`s assets and liabilities to potential buyers. JPMorgan Chase emerged as the winning bidder, agreeing to pay $1.9 billion for WaMu`s assets, including its branches, deposits, and loan portfolio.
Under the purchase and assumption agreement, JPMorgan Chase assumed all deposits held by WaMu`s customers, meaning that depositors did not lose any money as a result of the bank`s failure. The bank also agreed to honor all of WaMu`s outstanding loans, including mortgages and credit card balances.
The FDIC played an important role in the WaMu transaction, providing deposit insurance to protect customers and facilitating the sale of the bank`s assets. The agency has been involved in a number of similar transactions in recent years as a result of the financial crisis and subsequent recession.
Overall, the FDIC`s actions during the WaMu crisis helped to safeguard the banking system and prevent a deeper economic downturn. The purchase and assumption agreement with JPMorgan Chase allowed for a quick and orderly resolution of WaMu`s assets, minimizing the impact on customers and the broader financial system.
