AS the debate over a US$700-billion bank bailout rages on in Washington, one of the nation's largest banks -- Washington Mutual Inc - has collapsed under the weight of its enormous bad bets on the mortgage market.

The Federal Deposit Insurance Corp seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co for US$1.9 billion.

Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history.

Its US$307 billion in assets eclipse the US$40 billion of Continental Illinois National Bank, which failed in 1984, and the US$32 billion of IndyMac.

One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund.

But that detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial crisis since the Great Depression.

JPMorgan plans to write down WaMu's loan portfolio by about US$31 billion.