This weekend could mark the corporate death of Lehman Brothers, the 158-year-old Wall Street investment bank that has been brought to its knees by the sub-prime mortgage crisis.

The bank will, most likely, be broken up and swallowed by some of its erstwhile rivals, joining Bear Stearns in the hall of banking shame. A year ago, failure on such a scale would have been unthinkable. Now bank failure in the US -- albeit of smaller banks -- is a regular weekly occurrence, and few of the former Wall Street titans are immune from speculation. Lehman's failure will not be the end of this drama; the question is, who will be next?

The cost of this banking failure has, until now, been borne by the American taxpayers. They have risked more than $20bn to guarantee Bear Stearns' obligations and have just staked hundreds of billions more to shore up the two Federal mortgage businesses, Fannie Mae and Freddie Mac.

The logic behind the rescues is that all three were too big to fail, and if they had, they would have dragged down the global financial system with them.

The same argument will be -- and has been -- used in Ireland to justify state rescue if any of the banks or building societies runs into trouble. None will be allowed to fail and the state will be expected to pick up the tab for the bad luck, recklessness, greed or sheer incompetence that caused the failure.

Ireland's banks, for the moment, protest their resilience to the global forces that have wreaked havoc on Wall Street. AIB had the temerity to raise its interim dividend during the summer, a move that was designed to show the financial markets how robust it was. The truth, however, is more difficult to discern.

Ireland's banks may be correct to say they are on solid ground today, but the markets are worried about the future, not the present. The central cause of concern for all three banks is the scale of their exposure to the Irish and British property markets, and, in particular, their exposure to property.

Equally worrying to the markets is that more than half of the loans to developers have been made in the past three years, and represent lending at, or near, the very peak in the property cycle.

The actual figures are huge. AIB's exposure to residential property developers is around €15bn, Anglo's €7bn and Bank of Ireland's €9bn. For AIB and BOI, those loans are dwarfed by their mortgage business, but even within the normally safe mortgage market, there is a new layer of loans that is untested in a recession.

A proportion of those mortgage loans are for the "buy-to-let" market -- mortgages raised by investors who buy properties and then rent them out, hoping that the rental income offsets the mortgage costs.

While homeowners in Ireland have traditionally been reluctant to throw the keys back at their bank if they cannot keep up the payments (as happens in the US), the buy-to-let investor may have fewer scruples about defaulting.

The focal point for concern, however, is the lending to residential property developers. For the moment, it seems, the banks are not prepared to face up to the problems in the market and are hoping against hope that next year brings some relief.

Property developers who are in trouble are not being pushed into bankruptcy; in many cases, interest payments are simply being rolled up each month and added to the loans. That allows the banks to pretend to themselves that the loans are still performing, even though the reality is very different.

There is an incentive, too, to avoid slashing the prices of unsold homes in developments that are effectively bankrupt. Until a sale goes through at a new, realistic price, the banks can pretend to themselves that all those houses are worth what they were worth before the market collapsed. As soon as house is actually sold, then the value of the rest of the houses has to be marked down to reflect the market reality.

For the moment, therefore, it is a standoff. The banks are pretending that the collateral they hold for their loans is worth far more than it actually is, and they are pretending that loans owed by effectively bankrupt developers are still performing nicely, because the interest is being rolled up.

In their defence, they can claim that today's values are unrealistic, that the market will recover and that the developers will come through the current hiatus intact, but it is a claim that will be unravelled if the economy continues to deteriorate and the housing market continues to deflate.

AIB tried to deal with the lack of transparency in the numbers by talking about "criticised loans" -- loans that were under careful watch, but which were not yet in default. According to AIB, about 20 per cent of its loans to residential property developers in Ireland can be deemed "criticised" -- and Dresdner Kleinwort, the investment bank, expects that figure to double in the next six months.

The key figure is the percentage of loans that are expected to actually fail over the next two years -- will it be 10 per cent, or 20 per cent, or higher?

And of those that fail, what will eventually be recovered by the bank? The banking regulator says that the banks must assume they will lose 45 per cent of the value of those loans that default. Will it be higher, or lower?

At some point, market analysts say, the reality will bite, and, until it does, the lack of certainty about those loans to developers will haunt the banks' share prices.

Dresdner reckons that the three banks will clock up bad debts of €6.3bn over the next two years and has slashed its profit projections for each bank by up to a third.

Those bad debts will force AIB, it says, to sell its 24 per cent stake in M&T, a US bank, so that it can continue to afford paying its dividend. Bank of Ireland, it says, will have to hand out shares instead of a cash dividend to its shareholders next year.

JP Morgan is equally gloomy, saying that the Irish banks "tick the box in terms of most current investor concerns".

Added to the property gloom is the fact that the Irish banks rely heavily on the wholesale money markets to generate their funds -- they borrow money to lend money, rather than lending out what they get from depositors. The cost of borrowing has soared since the credit crunch, and funds are harder to get, meaning that the banks will find it more difficult to make money in the months ahead.

No one is suggesting that an Irish bank will go belly up next week, or next month. What is being suggested is that the Irish banks are so exposed to the property market, that it would not take much to cause yet another investor panic.

If a major property developer went into administration, for example, the banks' shares would tumble yet again. Even if that does not happen, confidence in the banks will continue to seep away if the economy shows no signs of revival. Outright failure, though, is not an option, but even a state-sponsored rescue would have harrowing consequences for the economy.

If any of the Irish banks or building societies edged close to insolvency, the Government would be forced to intervene to guarantee the bank or building society's liabilities while an orderly sale was organised. Depositors would be protected up to a point -- the amount of money guaranteed by the state is 90 per cent of the deposit, up to a maximum of €20,000 -- but shareholders would be hung out to dry. That matters less in a major market like the US or the UK, but, in Ireland, a large proportion of banks' shares are owned by individual investors and by Irish pension funds. The losses would be devastating to both.

There is no doubt that the Irish banks are in such treacherous waters because their lending policies over the past three years have bordered on the reckless. Mortgages in excess of 100 per cent were the final piece in the lunatic's jigsaw, but it was the torrent of money handed over to property developers in an overheating market that has hit them hardest.

Failure may not be an option, but is no longer unthinkable -- which why Irish Nationwide was so angered by last week's erroneous report from Reuters that it was close to insolvency. Confidence is so fragile that the smallest flapping of a butterfly's wings could set off a chain reaction, with devastating consequences.

What is certain is that bad debts will soar over the next two years, profits will tumble and both AIB and Bank of Ireland will have to find ways of raising new capital. They will reject calls for a rights issue -- selling more shares to existing shareholders at a knockdown price -- because the risks of failure would be high, which is why both JP Morgan and Dresdner believe that asset sales, and shares instead of cash dividends, are an inevitable next step.

For Lehman Brothers, asset sales are no longer a viable option and it is the banking knacker's yard that beckons. More than 150 years of tradition, of power, of masters-of-the-universe trading, come to an end.

And the only question that matters is: who's next?