The Collaborative International Dictionary of English v.0.48:

loony bin \loony bin\ (l[=oo]n"[y^] b[i^]n) n.
   An institution for the confinement or treatment of insane
   persons, such as an insane asylum or the psychiatric ward of
   a hospital. [slang]

   Syn: mental institution.
        [PJC]

WordNet (r) 3.0 (2006):

loony bin
    n 1: pejorative terms for an insane asylum [syn: Bedlam,
         booby hatch, crazy house, cuckoo's nest, funny
         farm, funny house, loony bin, madhouse, nut house,
         nuthouse, sanatorium, snake pit]