The largest bank failure in US history took place yesterday when federal regulators seized Washington Mutual and sold its branches, deposits and loans to its rival, the banking giant JPMorgan Chasefor around $1.9 billion  through a bidding process.

The acuisition makes JP Morgan, which four months ago acquired the failing investment bank Bear Stearns (See: US Fed clears JP Morgan's acquisition of Bear Stearns bank)  at a fire-sale price. the largest US depository institution with over $900 billion of customer deposits, financial services and the second-largest branch network in the US.

In the wake of the financial crisis, the Federal Reserve had been pressurising WaMu to sell itself as it was exposed to higher risk mortgages and had borne the brunt of the housing debacle. Although many envisaged interest but no one came forward with a concrete deal even as several deadlines issued by the Federal Reserve passed.

The US federal regulators were forced to take this drastic step as depositors who had lost confidence in the institution had withdrawn $16.7 billion in deposits since 15 September with the deposits having dropped below $135 billion from over $188 billion at the end of June, although the Seattle-based WaMu had assured investors just two weeks back that the bank had enough capital to deal with the losses accrued in the housing market loan portfolio.

The move also came as the US Congress failed to sign and dithered on Henry Paulson's $700-billion bailout fund designed to help ailing banks with its radioactive assets. (See: Bernanke implores Congressional support as $700-billion package faces opposition)

Seattle-based Washington Mutual has about $307 billion in assets and $188 billion of deposits and an estimated loss on loans of approximately $19 billion, although some analysts opine that that the loss cold be much higher.

JPMorgan will raise an additional $8 billion by issuing common stock on Friday to pay for the deal.

The US Federal Office of Thrift Supervision handed over WaMu to the Federal Deposit Insurance Corporation to initiate an auction of the bank and said in a statement ''With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business."

Shareholders and a few bondholders of WaMu will face the brunt as they stand to lose all their money in a stock that sold for more than $44 a share last year with a investor group led by private equity firm TPG being the biggest loser as it had pumped in $7.2 billion in WaMu recently to prop up the bank.

The account holders can rest easy as they will have full access to their money and their deposits up to $100,000 are guaranteed by the Federal Deposit Insurance Corporation and additional deposits will be guaranteed by JPMorgan Chase.

The FDIC said the deal will in no way affect its approx $45.2 billion deposit insurance fund and financial experts opine that, had Washington Mutual to fail then the failure would have cost the fund as much as $30 billion.

The acquisition will thrust JPMorgan to the top slot in the US banking industry with deposits of more than $900 billion and $1.78 trillion of assets and Bank of America trailing behind with $785 billion. This acquisition also comes four months after JPMorgan acquired the failing investment bank Bear Stearns.

JPMorgan, based in New York, will now add WaMu's 5,400 branches to its own of 2,239 and 43,198 employees.

It will however take a $31 billion loss in WaMu's troubled mortgages and credit card loans.

JPMorgan Chase Chairman and CEO, Jamie Dimon said ''This deal makes excellent strategic sense for our company and our shareholders. Our people have worked hard to build a strong franchise and balance sheet - making this compelling transaction possible.''

WaMu is the biggest bank failure in the US history eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago and the same pattern was followed in July this year when IndyMac Bank was taken over by federal regulators even as the bank was trying to find itself a buyer.