The FDIC, which insures bank deposits, said it would not have to dip into the insurance fund as a result of the seizure. There had been concerns that the fund, which took a big hit after the seizure of IndyMac Bank, could be depleted by a WaMu seizure.
WaMu "was under severe liquidity pressure," FDIC chairwoman Sheila Bair told reporters in a conference call.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Bair said. "For bank customers, it will be a seamless transition."
The government measures bank failures by an institutions's assets; Seattle-based WaMu has roughly $310 billion in assets. The previous record was the failure of Continental Illinois National Bank in 1984, with $40 billion in assets when it closed. IndyMac, seized in July, had $32 billion.
WaMu was searching for a lifeline after piling up billions of dollars in losses due to failed mortgages. WaMu has seen its stock price plummet by 87 percent this year, and it suffered a ratings downgrade by Standard & Poor's earlier this week that put it in danger of collapse.
The Bush administration's proposal for a x $700 billion bailout for distressed financial institutions was believed to have given fresh impetus to a buyout and new allure to WaMu. But it was't immediately clear how the bailout, which was still being negotiated in Washington late yesterday, would affect the JPMorgan Chase-WaMu deal.
JPMorgan Chase's chief executive, Jamie Dimon, said in a conference call, said the "only negative" related to the deal was "how to handle some of these bad assets." JPMorgan Chase said the acquisition will give it 5,400 branches in 23 states. JPMorgan Chase said it plans to close less than 10 percent of the two companies' branches; the bank has not yet decided which to close.
Washington Mutual, which operated seven retail locations in Massachusetts until it closed them last December, ran into trouble after it got caught up in the booming part of the mortgage business that made loans to people with bad credit, known as subprime borrowers.
Troubles spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage loans. Option ARM loans offer very low introductory payments and let borrowers defer some interest payments until later years. The bank stopped originating those loans in June.
Problems in WaMu's home loan business began to surface in 2006, when the bank reported that the division lost $48 million, compared with net income of about $1 billion in 2005.
At the start of 2007, then-chief executive Kerry Killinger said the bank had prepared for a slowdown in its housing business by sharply reducing its subprime lending and servicing of loans. was replaced as chief executive on Sept. 8 by Alan H. Fishman, former president and chief operating officer of Sovereign Bank.
