JP Morgan Chase has taken over the troubled US bank First Republic in a deal brokered by regulators.

The Wall Street giant said it would pay $10.6bn (£8.5bn) to the Federal Insurance Deposit Corp (FIDC), after officials shut down the smaller bank.

First Republic had been under pressure since last month, when the collapse of two other US lenders sparked fears about the state of the banking system.

Authorities said they hoped the deal would resolve the panic.

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The failure of San Francisco-based First Republic is the second-largest in US history and the third in the country since March.

Worth more than $20bn at the beginning of last month, the bank was known for its big home loan business and for its stable of wealthy clients. It was ranked as the 14th largest lender in the US at the end of last year.

The bank’s 84 offices in eight states reopened on Monday as branches of JPMorgan Chase Bank after regulators seized control and sold it to the Wall Street institution.

In a scramble to come up with a rescue package, US officials were understood to have contacted six banks before landing on America’s largest lender, according to news agency AFP.

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US President Joe Biden said the actions would ensure that the banking system was “safe and sound”.

But the deal appeared poised to renew political debate about financial regulation and the power of America’s biggest banks.

The Chief Executive of JP Morgan Chase, Jamie Dimon, said the government had “invited” the banking giant, along with others, to “step up, and we did” and offered assurances about the industry.

“This part of the crisis is over,” he said, noting that few other banks were at risk of customers withdrawing deposits on mass, which caused the problems at First Republic and the two other lenders: Silicon Valley Bank and Signature Bank.

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“Down the road – rates going up, recession, real estate – that’s a whole different issue. For now, we should take a deep breath,” he added.

Jamie Dimon told reporters on Monday: ‘Hopefully this will help stabilise everything.’

Fears over the health of the US’s banking system first erupted after the collapse of Silicon Valley Bank (SVB) in March. The demise a few days later of another US lender, Signature Bank sparked panic among investors and bank customers.

US authorities stepped in to guarantee deposits beyond typical limits at SVB and Signature in an effort to head off further runs on bank deposits.

But that did not immediately prevent concerns from spreading.

In Europe, Swiss officials were forced to broker a rescue for troubled banking giant Credit Suisse, which saw 61.2bn Swiss francs ($69bn; £55.2bn) leave the bank in the first three months of the year.