Colonial Bank, an Alabama-based bank with $25bn in assets, was closed on Friday by regulators in the biggest US banking collapse of the year. Regulators then brokered the sale of its branches and deposits to BB&T, one of the largest lenders in the south-eastern US.

Colonial’s 346 branches will reopen on Saturday under the BB&T banner, said the Federal Deposit Insurance Corporation, which was named receiver of the bank after it was closed by the Alabama State Banking Department.

Colonial, which had been trying for months to raise capital from investors, set up an auction process five or six weeks ago in an effort to sell itself, according to a person close to the matter.

The attempt drew lukewarm interest, however, as interested parties decided they would rather execute a deal with the FDIC’s backing.

The FDIC said it had agreed to share losses with BB&T on about $15bn of Colonial’s assets. It estimated the deal would cost the US Deposit Insurance Fund $2.8bn.

A handful of other banks – including Canada’s Toronto Dominion, Spain’s BBVA and JPMorgan – also bid for Colonial, which is embroiled in a federal investigation over its participation in the troubled asset relief programme and has seen its credit quality rapidly deteriorate this year.

Colonial also contacted nearly a dozen private equity firms, but the FDIC made it clear that it preferred a deal involving another bank as buyer.

Meanwhile, sources familiar with the matter say regulators hope banks including BBVA, JPMorgan and TD will bid for Guaranty Financial, an Austin, Texas, bank.

At least one bank is considering a bid as well as one private equity consortium, which includes Blackstone, Carlyle, Oak Hill Capital, TPG and Gerald Ford.

But other private equity firms say that even with massive government assistance, Guaranty has too many problem assets.

Moreover, rules that would govern future private equity investment in banks are still not clear.

“It is clear that banks over $25bn will be sold to strategic buyers while banks under $5bn will either be shut or sold to private equity,” said the executive who is spearheading one major private equity firm’s efforts to acquire a bank.

“It is the fate of those with assets between them that is still open to question.”

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