A cosy circle of American regulators and Wall Street executives operated a "too clubby to fail" policy of protecting huge investment banks at the expense of high street players, according to a bitter attack on the US government's conduct by the former boss of the ill-fated savings bank Washington Mutual.

Seattle-based Washington Mutual, widely known as WaMu, was seized by regulators at the height of the financial meltdown in September 2008, becoming America's biggest commercial banking failure on record.

But its former chief executive, Kerry Killinger, claimed to Congress that its closure was an unjustified act by a self-serving elite.

In aggressively worded testimony to a committee of lawmakers, Killinger insisted that WaMu, which had assets of $307bn (£199bn), could have survived independently if it had been given the same treatment as top Wall Street banking names. The bank had 2,200 branches, employed 43,000 people and was bought for a pittance by JP Morgan.

Killinger said WaMu was left off a "do not short" list that protected Wall Street banks from investors seeking to bet on failure, and was shut down shortly before new rules came into play providing cheap liquidity from the Federal Reserve and extended guarantees of customers' accounts.

"The company was similarly excluded from hundreds of meetings and telephone calls between Wall Street executives and policymakers that ultimately determined the winners and losers in this financial crisis," said Killinger. "For those that were part of the inner circle and were 'too clubby to fail', the benefits were obvious. For those outside the club, the penalty was severe."

Killinger left WaMu a few weeks before the bank's seizure, which happened ten days after the global financial system was shaken by Lehman Brothers' bankruptcy. He maintains that at the time of his departure, deposits were stable – although after Lehman's demise, customers began withdrawing money at a rate of more than $1bn a day.

"In my view, the actions taken by policymakers reflect a vision of a banking industry dominated by large Wall Street banks," said Killinger, in remarks likely to chime with critics who have suggested that the Bush administration's treasury secretary Henry Paulson's actions were coloured by his career as a former head of Goldman Sachs.

The account of the WaMu boss was given short shrift by Carl Levin, the Democratic chairman of the senate subcommittee on investigations, who released evidence detailing years of reckless lending by the bank's sub-prime mortgage business. A memo from one WaMu audit team found that 62% of loans written by a California mortgage office contained suspected fraud.

Levin pointed out that Killinger left with a $25m payoff for "overseeing shoddy lending practices that pumped billions of dollars of bad mortgages into the financial system".