The world's economic powers faced huge pressure today to devise drastic remedies to revive the banking system and end panic selling in global financial markets.
Finance ministers and central bankers from the Group of Seven nations meet in Washington against a backdrop of plunging shares after bank bailouts, liquidity injections and coordinated interest rate cuts failed to get funds flowing again.
In a bid to unfreeze bank lending, the US government is weighing guaranteeing billions of dollars in bank debt and temporarily insuring all US bank deposits,
The Wall Street Journalreported.
European shares traded down around seven percent, having already lost more than 15 per cent in the four days to yesterday's close. They were at their lowest level since 2003.
Japan's Nikkei tumbled nearly 10 per cent, registering its biggest one-day drop since a 1987 crash and losing nearly a quarter of its value in a week.
"This is panic," said Takashi Ushio, head of investment strategy at Marusan Securities in Tokyo.
The crisis claimed its first Japanese financial institution - unlisted Yamato Life Insurance Co., which had $2.7 billion debts. The government looked to prop up smaller banks.
Focus was on the G7 meeting later today. Ministers and bankers face intense pressure to agree a coordinated response to restore faith in the global financial system.
"It's time for the 'kitchen sink' - as in, throw everything there is at the problem and in such scale that the 'shock and awe' break the current cycle of fear," Charles Diebel, a rate strategist at Nomura, said in a note to clients.
A crisis which began with the collapse of the US housing market has destroyed lenders from Wall Street to Iceland. Much of the industrialised world is on the brink or recession and people are scared about losing their savings and jobs.
The US authorities last week approved a $700 billion bank bailout and central banks around the world cut interest rates in unison on Wednesday.
Reuters