U.S. regulators did not properly supervise Washington Mutual Inc, even as the savings and loan began to crumble because of the subprime mortgage crisis, a federal investigation concluded, the New York Times reported.

Seattle-based Washington Mutual became the biggest bank failure in history when it filed for bankruptcy in September 2008 at the height of the global financial crisis. Regulators then seized the operation before selling it to JPMorgan Chase & Co for $1.9 billion.

The Times reported the investigative report found that two agencies overseeing Washington Mutual feuded so much that they could not even agree to deem the company 'unsafe and unsound' until September 18, 2008 -- when it was too late to save the bank.

The Times said it obtained a draft of a report prepared by the inspectors general for the U.S. Treasury Department and the Federal Deposit Insurance Corporation. The report is expected to be released on Friday, coinciding with hearings this week by the Senate Subcommittee on investigations into Washington Mutual.

The key factor in Washington Mutual's failure was management's pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls, the report said, according to The Times.

(Reporting by Steve Eder; Editing by Derek Caney)

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