Lehman Brothers, one of the world's largest investment banks, announced today it plans to file for bankruptcy protection - a move expected to rock global financial markets.
The stricken firm said it plans to file a petition under Chapter 11 of the US Bankruptcy Code.
The move usually allows companies to reorganise their contractual and debt obligations under the supervision of a bankruptcy court.
The move follows the collapse of talks to secure a rescue deal for Lehman Brothers, one of Wall Street's oldest investment banks.
It has suffered billions of dollars worth of losses in the US mortgage markets and was unable to find an investment partner to throw it a lifeline.
Under the terms of the bankruptcy petition, the bank's holding company, Lehman Brothers Holdings International is filing for Chapter 11 bankruptcy.
The firm said it is still pursuing the sale of its broker-dealer operations, as well as its investment management division.
Another subsidiary, Lehman Brothers Asset Management, will also not be subject to the petition.
Lehman said in a statement: "The board of directors of Lehman Brothers Holdings International authorised the filing of the Chapter 11 petition in order to protect its assets and maximise value."
The group racked up a third quarter net loss of 3.9 billion US dollars (£2.2bn), after a seven billion US dollar (£3.9bn) hit from commercial property and sub-prime mortgage losses.
Barclays had been the front-runner to bail out the ailing firm, but the UK bank reportedly walked after failing to obtain guarantees over Lehman's financial commitments.
A consortium led by Bank of America (BoA) followed soon after, leaving the likely prospect that Lehman would have to file for insolvency.
The US Federal Reserve had been hosting emergency talks with banks in a bid to save Lehman.
Negotiations entered a third consecutive day in New York as officials battled to secure a deal. But with only hours to go Barclays walked away from the table.
In a separate move to help shore up the financial markets, Bank of America has announced a 50 billion US dollar (£28bn) deal to buy Wall Street giant Merrill Lynch, which has also been stung by the credit crunch.
Barclays said it had ruled out a Lehman Brothers bid as not being in shareholders' interest.
In a brief statement, the bank said: "We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders."
Lehman's share price tumbled 90 per cent last week in the wake of its poor third-quarter results and amid investor concerns that the battered bank was running out of options to raise capital.
In the UK, Lehman employs staff at its regional headquarters in Canary Wharf, London, as well as its office in High Wycombe, Buckinghamshire. Globally the group has around 25,000 staff.
As Lehman Brothers edged towards collapse, US and foreign banks announced plans to put in place a 70 billion US dollar (£39 billion) lifeboat credit fund to help shore up financial markets. The consortium includes Barclays, Bank of America, Citibank and Credit Suisse.
They have agreed to create a "collateralised borrowing facility" of 70 billion US dollars, with each bank contributing seven billion US dollars (£3.9 billion) to help ease access to credit.
Bank of America's acquisition of Merrill Lynch follows negotiations between the firms and the US Government, which was eager to minimise the damage from the Lehman fallout.