The fourth largest U.S. investment bank, Lehman Brothers has declared bankruptcy Monday after Barclays PLC and Bank of America or BOA pulled out from talks to buy the firm.

Barclays, the U.K.'s third biggest bank, and the BOA withdrew as they could not get guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets.

New York-based Lehman, the biggest U.S. underwriter of mortgage securities, has lost 94 percent of its market value this year after record losses from investments tied to mortgages.

Hugh Johnson is Chief Market Analyst at Johnson Illington Advisors.

"Lehman like so many other investment banks and banks really got, quite frankly, caught up in the housing bubble, but like every bubble, the bubble ended and now we're seeing the downside of that bubble."

Meanwhile, Bank of America said it was buying Merrill Lynch for 50 billion dollars in a transaction that creates the world's largest financial services company.

Merrill Lynch is a more attractive takeover candidate to Bank of America than Lehman because of its size and strong position in the retail market.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the US financial system.

Former Federal Reserve chairman Alan Greenspan said earlier that more financial firms will fail and that housing won't stabilize until 2009.

This is a once-in-a-half-century, probably a once-in-a-century type of event. There's no question that this is in the process of outstripping anything I've seen and it still is not resolved, and it still has a way to go. And indeed it will continue to be a corrosive force until the price of homes in the United States stabilises."

The world's largest insurance company, American International Group, also was forced into a restructuring.

And a global consortium of banks announced a 70-billion-US-dollars pool of funds to lend to troubled financial companies, with an aim to prevent a worldwide panic on stock and other financial exchanges.

The 10 banks include Bank of America, Barclays, Citibank, JP Morgan and Morgan Stanley, each of whom agreed to provide 7 billion dollars "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."