The Federal  Reserve Bank of New York held emergency talks with officials of major Wall Street firms as concerns grew that Lehman Brothers Holdings may fail to find a willing buyer to save the ailing institution.

Lehman executives, potential buyers and government officials struggled through Friday to craft a buyout plan as investors anticipated a weekend of last-ditch efforts to limit fallout from the latest victim of the global credit crunch.

"Senior representatives of major financial markets met at the Federal Reserve of New York Friday evening to discuss recent market developments," a Fed official told Reuters.

In attendance were government officials including New York Fed President Timothy Geithner, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Wall Street executives in attendance included Morgan Stanley Chief Executive John Mack, Merrill Lynch & Co Chief Executive John Thain, JPMorgan Chase & Co CEO Jamie Dimon, Goldman Sachs Group CEO Lloyd Blankfein, Citigroup Inc head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC and Bank of New York Mellon Corp, among others, the Wall Street Journal reported.

Bank of America Corp was represented, the New York Times reported.

The bank officials reviewed their exposure to Lehman with an eye to developing contingency plans, including an orderly liquidation of the firm if no buyers were found, the Times reported, citing people briefed on the situation.

"The Fed is trying get this thing sorted out," Mark Waggoner, president of Excel Futures of Huntington Beach, California, said when told of the meeting. "They are worried about a domino effect."    

Fears about the health of the US banking system hurt shares of Wall Street financial institutions on Friday, limiting gains in the broader stock market and pushing the US dollar lower.

Lehman shares closed at a 14-year low as traders increasingly came to the belief that the US government would not provide financial backing for a deal.

A source familiar with the thinking of the Treasury Secretary said earlier in the day Paulson was "adamant" that no public funds be put on the line to help facilitate a sale.

"I think they're going to have to draw a line at some point," Rose Grant, managing director of Eastern Investment Advisors in Boston, said of Washington regulators' role in bailing out financial institutions. "This could be the point."   

Bank of America is widely seen as a leading contender, with British bank Barclays also considered a possibility. Time is of the essence for Lehman. Since Monday, the firm's market capitalization has lost 78 percent, to about $2.5 billion from $11.2 billion. Its shares fell 13.5 percent on Friday to close at $3.65 on the New York Stock Exchange. Its bonds also dropped.

The uncertainty surrounding Lehman underscores how the US banking system as a whole does not have the capital needed to get through the current credit crunch, an influential investor said.

"Recent developments highlight the extent to which the banking system as a whole lacks sufficient capital to comfortably navigate this period of sharp deleveraging," Mohamed El-Erian, co-CEO of Pacific Investment Management Co (Pimco), said in an interview. Pimco oversees more than $812 billion in assets. -Reuters