Kerry Killinger, who led the Seattle-based thrift, also argued that WaMu had adequate capital and shouldn't have been seized by the government and sold for a "bargain" price of $1.9 billion in 2008. The bank "should have been given a chance to work its way through the crisis," he testified at a hearing by a Senate panel.
The panel's 18-month investigation found that WaMu's lending operations were rife with fraud and that management failed to stem the deception despite internal investigations.
Killinger rejected that conclusion. He argued that even before the crisis struck with force, WaMu was treated unfairly.
He noted it was excluded from a list of large financial firms whose stock couldn't be sold short under a temporary government ban in July 2008. In short-selling, traders bet a stock price will drop and use borrowed shares to profit from any decline.
"For those that were part of the inner circle and were 'too clubby to fail,' the benefits were obvious," Killinger said. "For those outside of the club, the penalty was severe."
Sen. Carl Levin, D-Mich., the head of the panel investigating WaMu's failure, asked two other former senior executives why they failed to act when they were aware of loan fraud at the bank.
David Schneider headed WaMu's home loans division. David Beck was in charge of selling mortgages packaged into securities to Wall Street investors.
"You knew all this," Levin told Beck. "You're telling us you didn't notify the investors" that loans with a high chance of default were being sold to them as securities, he said.
Beck replied that while he didn't notify the investors of problems, it's possible the loans weren't as risky as company officials had indicated in e-mails.
Two former chief risk officers of Washington Mutual said they tried to curb risky lending practices but met resistance from top management when they voiced their concerns.
Levin has said the panel won't decide until after hearings Friday whether to make a formal referral to the Justice Department for possible criminal prosecution.