The costs of the credit squeeze mounted on Wall Street on Wednesday as Merrill Lynch revealed a “staggering” $7.9bn writedown on mortgage-backed securities and Bank of America said it was cutting 3,000 jobs, mainly from its investment bank.

The Merrill losses were the biggest reported by any bank since the credit turmoil began, and BofA’s layoffs were the deepest so far on Wall Street, raising fears that there was more pain to come.