Q&A

Unlike Bear Stearns no bank could be persuaded to bail it out. The two leading candidates - Barclays and Bank of America - decided it was too risky. The US government also decided there was no point pouring good money after bad. So Lehman, which launched a doomed rescue plan five days ago, had no choice but to pull the plug.

But why did Merrill Lynch need to be rescued? It did not seem to be in as bad a state as Lehman?

Perhaps not yet but the bosses at Merrill, which had a similar exposure to the bombedout US mortgage market, could see what was likely to happen unless they moved quickly. By acting now to find a rescuer Merrill has probably avoided the same messy death. There will also be hopes that by shoring it up the wave of collapses of Wall Street's biggest names can be halted now.

Just how bad is it?

The loss of three of the biggest investment banking names on Wall Street - Bear Stearns, Lehman Brothers and Merrill Lynch - is unprecedented. Apart from the physical destruction wreaked by 9/11, it is the biggest challenge to face the Boulevard of Broken Hearts since the 1929 Crash. The world of mega-bonuses, corporate finance "masters of the universe" and screaming traders may never be the same again. When the dust settles it is likely only two independent US investment banks, Morgan Stanley and Goldman Sachs, will be left standing.

Are any UK banks at risk?

UK high street banks are less exposed to the US mortgage market. Some, such as RBS, have taken steps to strengthen their balance sheets through share issues. There are no surviving London-based investment banks of any importance, they have all been taken over. However, the global financial system is a complex web of deals worth many trillions. Every bank in the Western world will be poring through its books to work out its exposure to Lehman.

What does this mean for London?

Anyone who works at Lehman, more than 3,000 in London, is likely to be out of work soon. A further 4,000 at Merrill may not be in immediate danger but many will go. Out of the 300,000 or so who work in the City and Canary Wharf it is not a huge chunk but it will send tremors through London's financial district. Bonuses will be hugely down and those in work will feel less inclined to spend. It is bad news for property and businesses that rely on City bonuses.