Collapsing confidence in the US economy and financial system claimed its biggest victim today as Washington Mutual (WaMu) became the largest banking collapse in US history.

WaMu is America's largest savings and loan company. But as the credit crunch took a turn for the worst it was closed down by federal regulators pending its failure.

WaMu, effectively America's largest building society, was rescued by JPMorgan Chase as the Wall Street titan was persuaded to buy it for a knock-down $1.9 million (£1.05 billion).

Though it is little known here in the UK, WaMu's presence in parts of the US is huge.

Founded 199 years ago in Seattle in Washington state it grew during the 1930 Great Depression, buying up struggling and distressed rivals.

By this year it had 2,239 branches in 15 states with 43,000 staff. It had $307 billion of assets and $188 billion in deposits. But the fate of the savings and loan giant, known in the US as a thrift, was sealed in the last 10 days.

Depositors withdrew nearly $17 billion as middle America, whose housing values have crashed, feared for its savings.

WaMu's shares in the last year have collapsed 95%. Today's crash wipes away the investment of high-profile shareholders, like the private-equity giant TPG which led a $7 billion cash injection just five months ago.

“With insufficient liquidity to meet its obligations, WaMu was an unsafe and unsound condition to transact business,” said the federal thrift regulator. JPMorgan which in the spring bought bust rival investment bank Bear Stearns now becomes America's largest bank by deposits.
“This is a fabulous franchise,” said JPMorgan boss Jamie Dimon.

Among those touted as potential WaMu buyers were HSBC, and the Spanish giant Santander, the owner of the UK's Abbey and Alliance & Leicester. While the collapse of WaMu was heralded as historic by US financial commentators, its failure was seen by others as a certainty.

It has a large presence in California and Florida, two states hit hardest by the US housing downturn. Its ousted chief executive Kerry Killinger has been criticised for leading WaMu into a headlong chase into subprime mortgages and risky home loan strategies.