Washington Mutual failed in 2008 and was taken over by the federal government

Washington Mutual Bank, once the largest savings bank in the United States, closed on September 26, 2008, after a bank run — when thousands of customers rushed to withdraw their money at the same time. The Federal Deposit Insurance Corporation (FDIC), the government agency that insures bank deposits, took control of the bank and when ready sold most of its operations to JPMorgan Chase for $1.9 billion. This was the largest bank failure in American history at that time.

If you had money in a Washington Mutual account when it failed, your deposits were protected. The FDIC insured deposits up to $100,000 per account holder per bank at that time (the limit is now $250,000). Customers with balances under that amount received their full balance. Those with more than the insured limit lost the amount above the threshold, unless they had structured their accounts in certain ways the FDIC recognizes.

Key Takeaways

  • Washington Mutual failed in September 2008 because of bad mortgage loans and a sudden wave of customer withdrawals it could not cover.
  • The FDIC took over the bank and sold its branches and customer accounts to JPMorgan Chase within days.
  • Deposits under the FDIC insurance limit of $100,000 (at that time) were fully protected and transferred to JPMorgan Chase accounts.
  • Deposits above the insurance limit were not covered, though some customers recovered partial amounts later.
  • This failure led to changes in how banks are regulated and how much the FDIC insures.

Why Washington Mutual ran out of money

Washington Mutual had lent billions of dollars to people buying homes, especially through subprime mortgages — loans given to borrowers with poor credit histories or unstable income. When housing prices fell sharply in 2007 and 2008, many of these borrowers stopped paying. The bank's loan losses mounted faster than it could cover them.

At the same time, news reports about the bank's troubles spread, and customers began withdrawing their money in large numbers. The bank could not meet all the withdrawal requests because its cash was tied up in loans that were no longer worth what the bank had paid for them. Within weeks, the bank's situation became unsustainable, and federal regulators shut it down.

What happened to customer accounts

When the FDIC took over Washington Mutual, it did not close customer accounts or lose the money. Instead, it transferred accounts to JPMorgan Chase, which had agreed to buy the bank's deposits and branches. Customers woke up the next business day to find their accounts now belonged to JPMorgan Chase, with the same balance and the same account number.

This transfer happened automatically — customers did not have to do anything. Debit cards, online banking access, and automatic payments continued to work, though some customers experienced brief delays. The FDIC handled the transition to protect depositors and keep the banking system functioning.

Who lost money and why

Customers with deposits above the FDIC insurance limit lost the uninsured portion. In 2008, the limit was $100,000 per depositor per bank. A customer with $150,000 in a Washington Mutual savings account would have been insured for $100,000 and would have lost $50,000.

However, the FDIC later recovered some money by selling off Washington Mutual's remaining assets. Uninsured depositors received partial recoveries over time — typically between 50 and 70 cents on the dollar, depending on how the liquidation proceeded. This process took several years.

Shareholders and bondholders lost their entire investment. They had no protection like the FDIC insurance that protects depositors.

How the FDIC insurance limit changed after this

Washington Mutual's failure exposed a problem: the $100,000 insurance limit meant that large depositors and small business owners could lose significant sums. In response, Congress temporarily raised the limit to $250,000 per depositor per bank in October 2008, just weeks after Washington Mutual failed. This higher limit has remained in place since then.

The failure also led to stricter rules about what kinds of loans banks can make and how much capital they must keep on hand. Regulators now stress-test large banks regularly to make sure they can survive a financial crisis without failing.

What this means if you bank today

Your deposits at a bank insured by the FDIC are protected up to $250,000 per depositor per bank. If you have more than that amount, you can spread it across multiple banks or use FDIC-recognized account structures (like a joint account, which gets its own $250,000 limit) to protect the full amount.

Banks are also more heavily regulated now than they were before 2008. They must maintain higher reserves, undergo regular safety checks, and limit the kinds of risky loans they can make. These changes make a Washington Mutual-style failure less likely, though no bank is completely risk-free.

Frequently Asked Questions

Did Washington Mutual customers lose their money?

Customers with deposits under $100,000 (the insurance limit in 2008) lost nothing — their money transferred to JPMorgan Chase. Customers with more than $100,000 lost the amount above the limit, though many recovered 50 to 70 percent of that loss when the FDIC sold the bank's assets.

Can I still access old Washington Mutual accounts?

No — Washington Mutual no longer exists. If you had an account there, it became a JPMorgan Chase account on September 27, 2008. You can contact JPMorgan Chase if you have questions about old statements or account history.

Is my money safer now than it was before 2008?

Yes, in several ways. The FDIC insurance limit is now $250,000 instead of $100,000. Banks must keep more cash on hand and are inspected more frequently. However, no bank is completely risk-free — the FDIC insurance is your protection if something does go wrong.

What if I had more than $250,000 at a bank today and it failed?

The amount above $250,000 would not be insured and you would likely lose it. You can protect larger amounts by spreading money across multiple banks, opening joint accounts (which each get their own $250,000 limit), or using other FDIC-recognized account categories.