More than 20,000 people are forecast to lose their jobs on Wall Street as the credit crunch bites into business at financial institutions over the next two years.

New York's Independent Budget Office, a non-partisan agency which scrutinises the city's finances, estimates that profits on Wall Street fell by 80% during 2007 to $3.2bn - the lowest level since 1994.

In a report published this week, the office predicted that 12,600 job cuts this year, followed by 7,600 in 2009.

"The economic situation is particularly precarious," said Ronny Lowenstein, director of the publicly funded agency. "If the problems affecting Wall Street and housing worsen, the recession will be deeper and the fiscal pressures on the city will quickly mount."

The figures do not include the likely redundancies at Bear Stearns, which ran into difficulties after the report was compiled. They pose a potential headache for New York's public finances because almost 35% of wages in the city come from the financial sector.

Many leading institutions have already made deep cuts. Data compiled by Bloomberg News suggests that banks and brokerages have shed 34,000 jobs over the last nine months, the biggest round of layoffs since the dotcom boom ended at the beginning of the decade.

Among the layoffs are 6,200 jobs at Citigroup, 4,990 at Lehman Brothers and 2,940 at Morgan Stanley, all of which have written off billions of dollars related to sub-prime mortgages.

John Challenger, chief executive of the recruitment consultancy Challenger, Gray & Christmas, said those with transferable skills were better placed to find work elsewhere. "Everybody can figure out how to use an accountant or a salesman of one kind or another. But an analyst - that's more difficult. Those whose specialities are very much tied to Wall Street are having a more difficult time."

In spite of a downturn across the broader American economy, there are jobs available for administrative and support staff who lose their posts at financial firms. Those who work in information technology are similarly in demand. But traders and fund managers, who are used to high earnings, face a tougher market.

"It's a bleak time on Wall Street. Nobody can yet see the bottom, see the horizon, to know how long this will last," Challenger said.

Analysts say Bear Stearns' demise could add as many as 8,000 of the firm's 14,000 employees to the jobs toll.