Officials from the German government, central bank and financial regulator met today in an effort to save lender Hypo Real Estate after a Berlin-brokered deal to rescue the imperilled bank unravelled.
HRE is fighting for its life after German banks and insurers yesterday pulled out of a state-led €35 billion rescue programme agreed only days earlier.
The banks and insurers were to absorb €8.5 billion of the cost while the public sector was to shoulder the rest.
The Finance Ministry today urged all involved to "show responsibility" and said all possibilities should be considered.
"Everyone has to meet their responsibility, and according to the scale of their responsibility," ministry spokesman Torsten Albig said.
Chancellor Angela Merkel, back in Berlin after yesterday's crisis talks in Paris with her French, British and Italian counterparts, is due to make a statement on the bank's plight later today, a government source said.
The news of HRE's woes was a new blow for the global financial system struggling to cope with an unprecedented crisis of confidence. It also poses a political challenge for Ms Merkel's ruling coalition, which has come under fire for its handling of the rapidly escalating situation.
Mr Albig said experts from the government, the Bundesbank and regulator BaFin were meeting to assess the situation and would be consulting with the banks and insurers.
A financial source said the negotiations were likely to drag on into the night and it was clear that "a round of poker" was taking place between the commercial banks and insurers and the government.
A Bundesbank spokesman said the central bank's president, Axel Weber, who sits on the European Central Bank's Governing Council, was involved in the talks.
HRE said yesterday it was investigating alternative measures and that its major shareholders were standing by the bank. "We are fighting for the future existence of the company," HRE spokesman Hans Obermeier said.
Mr Albig said neither HRE nor the banks and insurers involved had informed the government before the collapse of the rescue package. "That is certainly very surprising," he said.
Sources familiar with HRE's situation said yesterday the financial sector had balked at the rescue plan after fresh financing shortfalls had emerged.
They had then insisted that Berlin take on a greater role in saving the bank.
The deal was designed to ensure HRE had enough funding to ensure it could function properly even as the short-term interbank lending market it depends on has practically halted.
So far, four German banks have been bailed out in the wake of the credit market turmoil stemming from the United States.