Bear Stearns has had to take out emergency funding, sparking fears that major Wall Street banks are suffering considerably from the credit crunch.
In the UK, a similar move by Northern Rock led to a bank run, which left the bank so indebted to the state that the Government was forced to nationalise it.
Bear Stearns is known to have used funding from JP Morgan Chase, which will be available for up to 28 days, to provide the bank with liquidity.
It said it is in talks with JP Morgan Chase to secure more permanent financing facilities.
The news sent Bear Stearns' share price down 58% on the news, hitting a low of $28 per share.
Alan Schwartz, CEO of Bear Stearns Companies Inc, comments: "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated.”
Robert Talbut, CIO of Royal London, believes the news is an indicator that the crisis may be coming to an end.
"his news demonstrates the degree of distress that still exists within markets despite the efforts of the US Fed," he says.
"This move signals that we are moving ever closer to the dénouement of this whole crisis. We will then see a combination of the US government, the Fed and the private sector attempting to stabilise the markets.”
The amount borrowed by Bear Stearns is currently unknown.
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