The Federal Deposit Insurance Corporation (FDIC), which controls the banking sector, has shut Irwin Union Bank & Trust and Irwin Union Bank.

The move comes after their parent firm - Irwin Financial - was unable to meet an FDIC demand to boost their capital.

The failure of the two banks is likely to cost the FDIC $850m (£522m).

This will come from the regulator's banking failure insurance fund, which has fallen this year from $45bn to $10.4bn, due to the number of banks that have failed.

However, while some analysts have questioned whether the FDIC will need to press for more funds from the government, the regulator says its insurance scheme has $42bn in reserves to handle failures over the next year.

The accounts held by Kentucky-based Irwin Union Bank and Indiana-based Irwin Union Bank & Trust are being taken on by rival First Financial Bank.

The FDIC insures each bank account at a failed bank up to $250,000.

Source: BBC