Washington Mutual has been acquired by JPMorgan Chase in a hastily arranged sale, becoming the largest US bank to fail.

Bank regulator the Office of Thrift Supervision (OTS) seized Washington Mutual, or WaMu, following a bank run where customers withdrew $16.7 billion over the last week.

With insufficient liquidity to meet its obligations, WaMu was in an “unsafe and unsound condition to transact business” the regulator said, after stepping in yesterday to shut the bank down.

The Federal Deposit Insurance Corporation (FDIC) was appointed as receiver and immediately held an auction for WaMu, which JPMorgan won.

“The housing market downturn had a significant impact on the performance of WaMu’s mortgage portfolio and led to three straight quarters of losses totaling $6.1 billion,” said OTS director John Reich.

The bank was the largest savings association supervised by the agency, with more than 2,200 branches in 15 states and $188.3 billion in deposits.

However, it had reported three straight quarters of losses, at a total of $6.1 billion. The bank had also recently been downgraded by credit rating agencies.

“The change will have no impact on the bank’s depositors or other customers,” the OTS said in a statement.

“Business will proceed uninterrupted and bank branches will open on Friday morning as usual.”

JP Morgan, which acquired Bear Stearns earlier this year in a similar deal, said the acquisition was “highly attractive” and creates largest US depository institution, with over $900 billion of customer deposits.

The bank will have a combined 5,400 branches in 23 states. The acquisition excludes WaMu’s senior unsecured debt and subordinated debt, and although JPMorgan said it will mark down part of the loan portfolio, the acquisition will be immediately accretive to earnings and will add more than 50 cents per share in 2009.