US regulators shuts down online bank NetBank

NetBank, an online bank with $2.5 billion in assets, was shut down by the US government because of an excessive level of mortgage defaults, an Associated Press report said.

The Associated Press report said it was the largest savings and loan failure since the tail end of the industry's crisis more than 14 years ago.

Federal regulators appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta, Ga.-based NetBank.

Customers with less than $100,000 deposited with NetBank will be protected by FDIC insurance, the report said.

While dozens of mortgage companies have closed due to soaring defaults of home loans made to borrowers with weak, or subprime, credit, those problems previously had occurred among non-bank lenders such as New Century Financial. NetBank, in contrast, is federally regulated, the report added.

Loose mortgage standards in recent years, especially among lenders catering to subprime borrowers, have resulted in a spike in home loan defaults, the Associated Press report added.

The FDIC said that $1.5 billion of NetBank's insured deposits will be assumed by ING Bank, also a major online bank that is part of Dutch financial giant ING Groep NV. ING will pay $14 million for the deposits and receive 104,000 new customers, the report further said.