NETBANK, a pioneering internet-based bank, has been shut down by US regulators in the biggest American banking collapse for 14 years.

The bank’s failure, revealed late on Friday night, comes as financial groups are still reeling from the fallout of America’s sub-prime mortgage crisis and recent freeze in credit markets.

The problems have spread across the globe, prompting a fire sale of the German bank Sachsen and forcing Britain’s fifth-biggest mortgage lender, Northern Rock, to go to the Bank of England for emergency funds.

Investors are also nervous about potentially huge losses at investment banks. Last week some suggested that Merrill Lynch and Deutsche Bank would have to take big hits. Analysts at Goldman Sachs estimate that Merrill, due to report results on October 17, will lose $1.5 billion (£736m) in its fixed-income business in the third quarter as it is forced into a huge write-down due to its exposure to collateralised debt obligations.

In America, a series of smaller lenders have been forced out of business. The largest mortgage lender, Countrywide Financial, also came close to failing before Bank of America pumped in $2 billion in return for an equity stake.

NetBank is the largest US bank to fail since the savings-and-loans crisis in the early 1990s. The bank, based in Geor-gia and launched in the late 1990s, had $2.5 billion in assets and was seen as a leading inter-net-only savings bank. The Office of Thrift Supervision, which regulates American lenders, blamed the bank’s demise on thumping loan losses and poor underwriting standards.

NetBank’s problems were made worse by its decision to expand into sub-prime mortgages, leaving it exposed to the meltdown in the US housing market.

ING, the Dutch bank, is taking over NetBank’s customers and $1.5 billion in insured savings deposits. It paid just $15m for the savings book.

Investors are nervous that other American lenders could go bust as the housing-market collapse continues.

Last week a report revealed that American house prices were falling at their fastest rate for 37 years. To add to the gloom, KB Home, the country’s fifth-largest housebuilder, announced higher-than-expected losses and wrote off $690m to cover land it owns.

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