Governments across Europe scrambled to save failing banks on Sunday, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and coordinated response to the global meltdown.
In Berlin, the German government held crisis talks after the collapse of a ballyhooed euro35 billion (US$48.4 billion) bailout of Hypo Real Estate AG, the country's second biggest property lender.
German Chancellor Angela Merkel said that Europe's biggest economy would "not allow the distress of one financial institution to distress the entire system."
In Iceland — particularly hard-hit by the credit crunch — government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.
Belgian Prime Minister Yves Leterme said he aims to find a new owner for troubled bank Fortis NV to restore confidence in the company before the opening of markets on Monday.
The bank's Dutch operations were nationalized amid fears they could go insolvent.
British treasury chief Alistair Darling said that he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country in weather the credit crunch.
Darling told the BBC that the government, which has provided billions of pounds (dollars) in support to the banking sector, that it was "important to take generalized action as well as being ready to take particular action if you get a particular problem with an individual bank."
In the past year the government has acted to nationalize struggling mortgage lenders Northern Rock and Bradford & Bingley.
On Saturday, the leaders of Germany, France, Britain and Italy met to discuss the growing meltdown which has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from the massive US$700 billion (euro506 billion) bailout passed by the U.S. Congress a day earlier that President Bush signed into law.
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While Europe's four largest economies pledged to coordinate national responses to help banks in distress, their failure to agree an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.
France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.
That was telling, given crisis talks aimed at keeping Hypo Real Estate afloat. The firm said Saturday that the rescue plan had fallen apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU earlier this week.
It was not known if the government, which planned to inject nearly euro27 billion (US$37.35 billion)would raise its stake in the bailout package.
In Iceland, — one of the countries most heavily exposed to the credit squeeze — government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.
Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of euro100 billion (US$138.34 billion) — dwarfing the tiny country's gross domestic product of euro14 billion (US$19.37 billion.
The government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating.
Looming large was a growing sense that the Federal Reserve and Europe's major central banks were ready to institute emergency cuts to their benchmark interest rates this week.
None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate from 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.
Robert Brusca, chief economist at the New York-based Fact and Opinion Economics, said that the ECB does issue such a cut it would a be a sign "that they're really, really scared."