The fallout from the largest-ever US bank failure rippled through markets on Friday after federal regulators late Thursday shut down the country's largest savings and loan, Washington Mutual Inc (WaMu).

The firm's assets were immediately sold to banking giant JP Morgan Chase & Co for 1.9 billion dollars, creating the largest US bank by deposits and guaranteeing all customers' deposits.

With the acquisition, JP Morgan Chase will operate 5,400 branches in 23 US states, the firm said.

"This is a fabulous franchise," JP Morgan chief executive Jamie Dimon told Bloomberg financial news. "We think we got this at a price that protects us, where if we were wrong, it still protects us."

The move had pushed down financial shares in morning trading on Wall Street.

WaMu, based in Seattle, Washington, collapsed when its credit rating was downgraded to junk status late Wednesday, bringing action by the Federal Deposit Insurance Corporation (FDIC), a government agency that insures individual bank accounts up to 100,000 dollars.

Since last week, WaMu customers had pulled more than 16 billion dollars from their accounts, according to the Office of Thrift Supervision, which declared the bank to be "unsound."

The bank is the latest victim of the US credit crisis, which in recent weeks has seen a government bailout of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group (AIG), as well as the bankruptcy of investment bank Lehman Brothers Holdings Inc and a restructuring of the last remaining investment banks.

Negotiations in Congress over a 700-billion-dollar intervention to acquire mortgage related assets were ongoing Friday as the Bush administration, Senate leaders and House Democrats tried to bring objecting Republicans in the House of Representatives on board.

JP Morgan is only buying WaMu's consumer deposits, leaving the thrift's liabilities to the FDIC to resolve. WaMu had lost a reported 19 billion dollars on bad mortgage loans, amid the ongoing Wall Street crisis stemming from mortgage securities. It had been the second-biggest provider of option adjustable rate mortgages, Bloomberg reported.