“If you like a bit of adrenalin, its been great,” was how one of the City’s top bankers described the market’s most dramatic week in modern times.

The collapse of Lehman Brothers and the rescue of Merrill Lynch last weekend triggered a panic that many feared could bring more of the world’s top financial institutions to their knees.

By yesterday evening that panic had turned to relief after the US Government announced its proposed bailout of the American banking system. A sickening slump in share prices at the start of the week was reversed by an astonishing rally that left the stock market almost where it started.

Had you returned from a week’s holiday on the Moon you would wonder what all the fuss was about. What had really changed?

The answer is that after the events of the last week, the world’s financial system will never be the same again. And, after several false dawns, an end to the nightmare of the credit crunch may be in sight.

For thousands of Lehman Brothers employees, that will be of little consolation. Many face financial ruin. Thousands of employees at HBOS also face losing their jobs as a result of the bank agreeing on Wednesday to a rescue takeover by Lloyds TSB.

They will all be wondering what might have happened if Hank Paulson, the US Treasury Secretary, had made his pledge to bail out the American banking system not yesterday, but a week ago.

A week ago Dick Fuld, the harddriving chief executive of Lehman Brothers, was battling to sell the bank, whose finances had been wrecked by its exposure to the collapsing US housing market.

But the US Federal Reserve refused to help to fund rescue takeovers and Lehman filed for bankruptcy.

While Barclays subsequently agreed to buy the bulk of its US business, the fate of Lehman Brothers’ 4,500 staff in London remains in doubt. Mr Fuld’s counterpart at Merrill Lynch, John Thain, had better luck. On Monday morning it was announced that Bank of America was buying the most famous name in American finance.

In March the US Federal Reserve provided financial support for JPMorgan Chase’s takeover of Bear Stearns, the smallest of the five Wall Street investment banks. Many had assumed that it would do the same for Lehman. For whatever reason, it decided not to. This sent markets into a spin on Monday. Not only did the markets fear the direct impact of the failure of Lehman, which had $600 billion of liabilities, but they also questioned what other big institutions the Fed might allow to go to the wall. If Lehman Brothers was not too big to fail, who was?

Investors, including hedge funds that bet on falling prices, looked for the next victim. Stocks in vulnerable financial companies tumbled. In New York the Dow Jones average plummeted 4.4 per cent while in London the FTSE 100 index slumped 3.9 per cent.

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