One of the biggest banks in Florida has been shut down by regulators and its assets sold to a rival in a move that underlines the continued frailty of the American banking and property sectors.

Colonial Bank, which was based in Alabama but had flourished in the central Florida property boom, had $25 billion (£15 billion) in assets.

It is the largest American bank to fail since Washington Mutual collapsed at the height of the credit crunch last September, and the fifth-largest American bank failure ever, according to analysts.

Colonial was shut down on Friday by the Federal Deposit Insurance Corporation (FDIC), the government agency that provides a safety net for the customers when banks get into difficulties.

The FDIC said Colonial’s 346 branches, which are spread across five states, and most of its assets had been transferred to one of its rivals, BB&T. The switch will make BB&T, based in North Carolina, America’s eighth-biggest bank.

The FDIC revealed that it was expecting to take a hit of about $2.8 billion in making good Colonial’s losses. The agency has struck a deal that will see it share part of the losses if the loan books it has sold to BB&T turn bad.

Colonial was set up in 1981 with funds of $160m and grew quickly, buying 25 banks in Florida between 1996 and 2007. It was a big player in real estate loans, in particular through its “mortage warehouse” business, where it provided short-term loans to third-party mortgage brokers.

Analysts said that its mortgage lending in Florida had left the bank with $1.7 billion in non-performing loans.

Colonial’s management had been struggling to find a buyer since announcing last month that there was “substantial doubt” it could survive as an independent business. The bank admitted last week it was under investigation for possible mortgage fraud. It also confirmed there was a separate investigation into its accounting practices in connection with an application for funds from the Troubled Asset Relief Program, the US government’s scheme to bail out troubled banks.

Its offices and those of Taylor, Bean & Whitaker, another mortgage lender, were raided by federal agents a fortnight ago.

While the American economy has shown signs of reviving in recent months, banks have continued to fail at a rapid rate.

As well as Colonial Bank, four others went under on Friday, the largest of which was Las Vegas-based Community Bank of Nevada, which had total assets of $1.5 billion. The others were two smaller institutions in Arizona and one in Pittsburgh.

That brought the total number of bank failures for the year to 77. Banking experts believe the rate of failures is unlikely to slow soon as the pressure increases on more small lenders that were heavily exposed to the property market. Some estimates have put the eventual tally of failed banks and other lenders as high as 150.

The failures have put pressure on the FDIC’s reserve fund, which is used to compensate savers. It stands at $13 billion, but the agency plans to replenish it using a one-off levy on the banking industry that could raise about $6 billion.

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