Citigroup Inc is to buy Wachovia Corp's banking operations, rescuing the the sixth-largest bank in the United States.
It has been felled by bad mortgages amid turmoil in global credit markets.
The $US2.16 billion all-stock transaction was brokered by the Federal Deposit Insurance Corp.
US Federal Reserve Chairman Ben Bernanke said it would foster financial stability.
Wachovia is the latest casualty of a crisis that has led to changes at Goldman Sachs Group Inc and Morgan Stanley, shotgun sales of Bear Stearns Cos and Merrill Lynch & Co, and bankruptcies of Lehman Brothers Holdings Inc and Washington Mutual Inc.
North Carolina-based Wachovia had had a market value above $US112 billion in February 2007.
Citigroup will absorb as much as $US42 billion of losses on Wachovia's $US312 billion loan portfolio, with the FDIC taking on any further losses in exchange for $US12 billion of Citi preferred stock and warrants.
Wachovia will remain based in Charlotte, and its securities brokerage will remain based in St. Louis. Charlotte is also home to Bank of America.