Banks rush to do deals as Wall St crisis deepens

Lloyds was previously blocked from buying a smaller mortgage bank, and the British government shocked investors by taking over troubled bank Northern Rock in February -- the country's first major nationalization since the 1970s.

U.S. authorities already have spent $900 billion to prop up the financial system and housing market. Authorities may get much of that money back -- if asset prices do not slide further.

The AIG rescue came just over a week after the bailout of mortgage finance companies Fannie Mae and Freddie Mac, and six months after the Fed brokered the sale of failed investment bank Bear Stearns to JPMorgan Chase.

Two legendary firms bit the dust over the weekend. Lehman Brothers Holdings Inc filed for bankruptcy and Merrill Lynch & Co CEO John Thain struck a deal to sell out to Bank of America Corp.

"Thain at Merrill Lynch did a very smart thing ... in keeping shareholders from being swallowed up by this vortex," said Jeffrey Gundlach, chief investment officer at bond manager Trust Company of the West in Los Angeles.

(Additional reporting by Svea Herbst-Bayliss, Jon Stempel, Jennifer Ablan, Joseph Giannone, Jeffrey Hodgson and Kevin Plumberg; Editing by Maureen Bavdek and Ted Kerr)