SAN JUAN, Puerto Rico (AP) — Regulators on Friday shut down three banks that had struggled to stay afloat during Puerto Rico's grinding, four-year recession.

Healthier lenders in the U.S. Caribbean territory agreed to take over the assets of the failed institutions in the island's largest bank consolidation in more than 20 years.

"These are very difficult times," Sheila Bair, head of the Federal Deposit Insurance Corporation, said at a news conference in San Juan. "The consolidation that is being announced today I think will strengthen the banking sector here."

Bair said the failures will cost the FDIC's insurance fund about $5.3 billion.

Puerto Rico's recession began before the economic downturn on the U.S. mainland and has cut deeper: Its 16 percent unemployment rate is higher than that of any of the 50 states. The slowdown stuck lenders with bad assets, including mortgages for high-end residential properties, that have failed to sell in a market many consider overbuilt.

The three failed banks together held more than one-fifth of bank assets on the island. Westernbank Puerto Rico, based in Mayaguez, had about $11.9 billion in assets; R-G Premier Bank of Puerto Rico, based in Hato Rey, $5.9 billion; and San Juan-based Eurobank, $2.5 billion.

All three banks had received cease and desist orders from the FDIC and their assets were put up for bid through a confidential auction.

Banco Popular de Puerto Rico agreed to acquire the deposits and about $9.4 billion of the assets of Westernbank, while the FDIC will keep the remainder for eventual sale. Scotiabank de Puerto Rico agreed to buy all the assets and deposits of R-G Premier Bank, and Oriental Bank and Trust is acquiring all the assets and deposits of Eurobank.

Analysts said the mergers would help, but the island is not out of the woods financially.

"If you look at the problems we are facing in Puerto Rico, the economy is not growing, the government is not spending and banks are not really lending," said Sergio Marxuach, an analyst with the Center for the New Economy think tank in San Juan.

He said the surviving banks will have to contend with newly acquired toxic assets, including soured loans for commercial real estate and construction.

"With the economy still in a downturn, banks are going to be very selective with the loans they make," Marxuach said.

Gov. Luis Fortuno urged islanders to remain calm and assured them their deposits are safe because FDIC guarantees cover all the affected banks. Authorities said customers would hardly notice any changes immediately because all bank branches are to operate as normal.

The consolidation reduces to eight the number of banks operating on the island of 4 million people.

Vicente Feliciano, president of Advantage Business Consulting in San Juan, said the biggest bank consolidation since the late 1980s will likely lead to hundreds of layoffs in the near future and remake the local industry.

"This is certainly a game changer," he said. "The remaining banks will be in a stronger position in terms of equity and in terms of market power."

Banco Popular, which is Puerto Rico's largest bank, will have more than 31 percent of the island's deposits once the deal is completed.

The Federal Reserve Board, as the bank's primary regulator, voted Friday to approve its acquisition of Westernbank's assets and deposits. The Fed said its board concluded that any ill effects for competition on the island are outweighed in the public interest by the transaction's convenience for local communities.