The fifth-largest US investment bank has tabled huge losses as a direct result of the chaos within the financial markets.
Cayne has resigned from his formal post yet will stay on as the bank's non-executive chairman, whilst Alan Schwartz - the current president - will take the reins.
The bank had to write down $1.9bn in 2007 as a result of its exposure to the non-conforming market in its first ever loss.
Since the extent of this exposure was made public and two of its hedge funds collapsed under the strain, Bear Stearns' shares have fallen by more than 50 per cent.
