Why does it matter if the share price of Goldman Sachs sinks by a quarter in a few hours?

In boom times, few of us see little direct benefit from investment banks when business is going well, so conversely, how could their misfortune affect us? Why should we care if yesterday on Wall Street, shares of Goldman Sachs dropped by as much as a quarter, Morgan Stanley declined

24 per cent, and JP Morgan Chase fell 12 per cent?

First, the bulk of our pensions are invested in the stock market. While different fund managers decide what proportion to invest in banking stocks, and in American equities, up until retirement the largest part of pension funds are in equities.

But more broadly, the decline in shares such as Goldman has a more pernicious impact on us. As their share prices decline - a numerical measure of confidence - banks find it more difficult to raise new money.

Without funding, investment banks are dead.

On Tuesday evening, panic about everybody else's exposure to bust firms such as Lehman Brothers and near-collapsed companies such as AIG, effectively froze the market. Banks stopped lending to each other.

Critically, investment banks are the middlemen between corporate Britain and the stock market, advising companies on raising new capital that they need to grow.

As investment banks struggle to survive, their attitude towards risk changes and they are less willing to lend money to their corporate customers. That reticence filters down through the financial system to individuals - banks are already tightening their belts and clamping down on extending credit to some customers or making new borrowing prohibitively expensive.

The simplest way to find out if you should worry about Goldman's share price is to phone your bank and ask for a bigger overdraft. You won't like the answer.

Not all banks work in the same way. Some have retail businesses with "ordinary" customers who borrow mortgages, have credit cards and current accounts - but investment banks such as the bust Lehman Brothers had none, nor has Goldman Sachs. The lack of "ordinary" customers makes these banks horribly vulnerable during the kind of turmoil that stock markets are currently experiencing because their business, chiefly made up of dealing with other banks, can be withdrawn in a phone call.

As such, there is believed to be a race between Morgan Stanley and Goldman to find a fat retail bank whose large deposits can cushion them during the downturn. If they can't, we should all be worried.

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