HOWZAT

At the same time, the ECB released €30 billion (£23.8 billion) to keep liquidity flowing between banks.

In France, the CAC 40 index lost 4 per cent and Frankfurt’s DAX fell 3 per cent.

In the UK, PricewaterhouseCoopers was appointed as Lehman’s administrator and Tony Lomas, a partner at the accountancy firm, said the business would be wound down in as orderly manner as possible.

"Because the group managed its funding on a global basis, the UK trading operation found itself unable to meet its obligations when the flow of funds dried up last night,” Mr Lomas said.

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A Niagara of liquidation fell upon the American Stock Exchange today

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"Our priority now is to work with management and trading counterparties to agree the manner in which the assets and liabilities will be handled."

The Financial Services Authority, the City watchdog, said today: "The FSA is working with market practitioners, including the London Clearing House, to ensure the process connected with the winding down of this wholesale business is completed in an orderly manner to minimise any market disruption."

Workers at Lehman Brothers' Canary Wharf headquarters were said they were "numb" at today’s developments.

One source said: "People are just trying to absorb what happened and get as much information as they can, but there's been no big official meetings. There have been talks division by division."

The source said that staff were told to come in to work today as normal and were "trying to be professional, cancelling appointments" but have been warned not to enter into any trades without sign-off from their superiors.

The hunt is now on for which banks are exposed to Lehman and, at the weekend, traders at all the leading banks were ordered back to their desks to calculate their exposure to a possible collapse of the lender.

While the bank has widely been perceived as most vulnerable because of its substantial holdings of mortgage-backed securities, it was the US Treasury's refusal to bankroll a rescue that was seen as preventing other parties from bailing out the bank. Previously, the Government had helped rescue financial companies.

Earlier this year, it facilitated JP Morgan’s takeover of Bear Stearns while, just last week, it pledged $200 billion to guarantee the survival of Fannie Mae and Freddie Mac, the US mortgage debt giants that underwrite nearly half of America’s home loan market.

Hank Paulson, the US Treasury Secretary, and Tim Geithner, president of the New York Federal Reserve Bank, had convened an emergency meeting in New York on Friday evening to try to convince other banks to rescue Lehman. Bank of America (BoA) and Britain’s Barclays had considered buying Lehman.

Instead, BoA struck a deal to buy Merrill Lynch for $50 billion while Barclays walked away from a deal after the US Government failed to provide capital support for a rescue.

American authorities had hoped to ring-fence $85 billion worth of Lehman's real estate assets into one company, which they wanted banks, such as Citigroup and JP Morgan Chase, to prop up with $35 billion of new capital.

Mr Paulson had hoped to persuade the banks to inject new money to prevent a fire sale of Lehman's assets, a move which could have triggered a fall in the value of their own securities.

Mr Paulson is expected to participate in the daily White House briefing today.

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