As U.S. lawmakers grappled over a $700 billion dollar bank bailout plan, one of the nation's largest banks - Washington Mutual Incorporated - collapsed under the weight of its enormous bad bets on the U.S. mortgage market. From Washington, VOA's Purnell Murdock reports on what is seen as the largest bank failure in U.S. history.

Pedestrians walk past Washington Mutual Inc. branch in downtown Seattle, Washington (file photo)

With financial markets reeling over the recent crisis on Wall Street, the collapse of Seattle-based Washington Mutual could not have come at a worse time.

Federal regulators moved quickly, seizing the troubled mortgage lender late Thursday and selling the thrift's banking assets to U.S. investment bank J.P. Morgan for nearly $2 billion.

The Federal Deposit Insurance Company, FDIC, insures Americans' bank deposits of up to $100,000. But it says because of the deal it will not have to use its assets to cover Washington Mutual's deposits.  

The FDIC had already spent billions of dollars in its takeover of IndyMac, which collapsed in July. Some analysts say a Washington Mutual failure could have used up half the money in the government insurance fund.

J.P. Morgan Chase said it plans to close less than 10 percent of the two companies' branches. The bank has not yet decided which to close.  Kelsey Wesley, a Washington Mutual employee says employees are nervous. But adds the company, commonly known as WaMu, has been good to them in the past.

"I'm not gonna say that is not gonna happen but no matter what WaMu has a really impressive severance package and I think that's going to be carried on even if there is a merger," he said.

John Graybill, another Washington Mutual employee said he is optimistic.

"Of course we are going to have some uncertainties and some questioning about what's going on. Have I been nervous? Sure. That's the nature of the whole beast," he said.  "When a large company gets bought out you wonder about your job. Are heads gonna roll? You just don't know but we have faith in our bosses and the people upstairs."

FDIC Chairwoman Sheila Bair says this will be a seamless transition for the bank's customers. She says there will be no interruption in services and bankers can expect business as usual.

Washington Mutual has been saddled with billions of dollars of debt because it heavily invested in selling risky subprime mortgages to customers who later defaulted on them.

This is J.P. Morgan's second purchase of a financial institution left vulnerable by the subprime mortgage crisis.  It bought Bear Stearns for more than two-billion dollars earlier this year.