Washington Mutual (WaMu) has been closed by its regulator, making it the biggest US bank to fail.
The Office of Thrift Supervision (OTS) stepped in to shut the mortgage lender before selling its assets to JPMorgan Chase for $1.9bn (Ј1.0bn).
The OTS said it was worried WaMu would run out of cash as $16.7bn of deposits had been withdrawn since 15 September.
WaMu was one of the lenders worst-hit by the collapse of the US housing market and soaring mortgage defaults.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
The bank had about $307bn of assets but only about $188bn of deposits.
It raised an extra $7bn of capital from a consortium led by the private equity group TPG in April.
It is less than three weeks since WaMu dismissed its chief executive Kerry Killinger, who it blamed for the bank's expansion into sub-prime and other comparatively risky lending.
Sup-prime mortgages are offered to borrowers with inferior credit records or unpredictable incomes.
WaMu is JPMorgan's second big fire-sale acquisition since the start of the credit crunch. It is the same bank that stepped in to buy Bear Stearns in March.
The transaction means it is now the second biggest US bank, with 5,410 branches in 23 states.
(BBC)
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