“Whenever you have a liquidity failure, they stay in your mind for years and years,” said one person familiar with regulators’ actions. “It’s a failure in which you lose control very quickly, and, as a regulator whose job is to maintain public confidence, you don’t like to see that situation.”

The FDIC kept a close watch on WaMu following the July meeting with executives. The regulators’ calendar records and dozens of interviews show that the OTS and FDIC carefully monitored WaMu’s liquidity levels during this period and were well aware of the bank’s plan.

Hundreds of emails flew back and forth between Bair, her chief of staff, board members of the FDIC, and OTS staff involved in bank supervision. Bair alone sent more than 50 emails with WaMu as the subject during those eight weeks, including many sent at night, early in the morning, or on the weekend.

The content of the emails, obtained by the Business Journal through the Freedom of Information Act, is not part of the public record because regulators blacked out the writing with markers before releasing them.

Despite these redactions, the subject lines make clear that the contents refer to liquidity reports on WaMu. It also appears that FDIC staff met at least twice regarding WaMu—once at the beginning of August and again in mid-September amid WaMu’s second bank run.

“Should Never Have Been Seized”

When the OTS closed WaMu on September 25, 2008, it sent out a press release that gave this reason:

“With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business.”

In short, the OTS feared WaMu didn’t have enough ready cash to allow customers to make withdrawals at teller windows and ATMs.

In its release, the OTS revealed that WaMu had suffered a bank run in mid-September that had drained $16.7 billion of WaMu’s liquidity in 10 days. It also cited the fact that the bank had posted a financial loss of $6.1 billion in the previous three quarters, due to nonperforming mortgage loans.

OTS did not reveal the previous $9.4 billion bank run in July. WaMu insiders later documented that outflow of deposits for a report in the Business Journal.

What OTS also didn’t make public, at the time or afterward, were WaMu’s actual liquidity figures or its capital position at the time of the seizure.

WaMu never released them either, because it closed before reporting its third-quarter financial results.

But documents and interviews with former WaMu employees show that regulators closed WaMu even though it had liquidity and capital that were well above the levels at which a bank might normally be threatened with closure.

Typically, a bank is in danger of being seized if its net liquidity dips below 5 percent of total assets, according to banking experts and former regulators. On the day regulators shut WaMu, the bank had $29 billion in net liquidity—about 9.4 percent of assets, and nearly twice the closure threshold. The figure was provided by a former senior WaMu manager who closely tracked the bank’s liquidity at the time. It was confirmed by a former top WaMu executive who had full knowledge of the bank’s liquidity position.

“With the cash it had, WaMu should never have been seized,” said a senior banking regulator familiar with the matter.

In addition, internal documents and interviews with bank employees show that WaMu had a plan to operate and survive even if its liquidity dropped to $25 billion, what it termed a “stress case scenario.” At that level, WaMu’s liquidity still would have been more than 3 percentage points above the typical trigger point for regulatory action.