The financial world stepped back from the brink today after bank rescue packages worth hundreds of billions were unveiled by Britain and Europe as the US continued to forge ahead with its own salvage plan.
Markets bounced back from a week of falls, buoyed by financial pledges from the governments.
Britain announced it would pump billions into three major banks; Germany approved a guarantee package of up to €500bn; France promised €350bn and Spain and Austria each underwrote €100bn.
The US said it was taking legal advice on how to take partial ownership of some banks in its $700bn (€517.6bn) bail-out.
The news came after it emerged that the European Commission had approved the Irish Government's guarantees to banks here, and he result was that stock markets around the world rose.
The co-ordinated efforts by European and the US to prop up the banking system saw major US stock indexes rise by more than 4%.
Earlier European markets rallied following Asia’s overnight lead in response to the widespread government initiatives.
In Paris, President Nicolas Sarkozy said banks were afraid of lending to failing institutions and “keeping liquidity for themselves.
To solve that, the French government will create an authority that will guarantee loans for a period of five years, the French president said.
In return, banks will be asked to provide certain obligations, including the manner in which its executives are paid. Mr Sarkozy has vowed to do away with exorbitant severance payments to executives who have incurred unreasonable risks.
To recapitalise struggling financial institutions, the French government will create another authority in which the state will be the only shareholder, the French president said.
“The French state will not let any bank fail,” he declared. To prevent bank failure, the state will take control of the institution and change its management, he added.
He said that the proposals would be put before the two houses of parliament on Tuesday and voted into law by the end of the week.
In Germany, Chancellor Angela Merkel said the rescue package would be law by Friday.mediate effect, she told a news conference.
The inter-bank lending market had practically come to a standstill in Germany the guarantee would help it restart.
The draft legislation indicates Germany will set up a state fund that will inject equity into the banks and accept troubled assets from them as security.
“This package serves to protect citizens, not to protect the interests of banks,” said Ms Merkel, who met eurozone leaders yesterday to discuss the rescue.
Banks which obtain the state aid would not be allowed to pay extra incentives or severance bonuses to executives, or dividends to shareholders, German Finance Minister Peer Steinbrueck added.
In Washington, President George Bush said nations were taking “decisive action” to revive economic growth.
“All of us will continue taking responsible, decisive action to restore credit and stability and return to vigorous growth,” he said.