A big rescue operation looks imminent for Dexia after France's finance minister indicated that a partial solution to save the part French, part Belgian bank could be announced as soon as tomorrow.
Francois Baroin said today that Dexia "cannot continue in its present form, that is incontestable" and that the bank's supervisory board would unveil "a very important response" to the crisis tomorrow.
He also told French radio station RTL that a solution would likely involve French state-owned banks CDC and Banque Postale taking over Dexia's municipal lending operations.
"We are working on a solid, structured solution," Baroin said.
The French government is under acute pressure to save Dexia as the bank is one of the country's largest lenders to towns and cities.
Dexia shares have recovered some of their recent losses but remain sharply lower on the week.
Dexia shares were 2% higher in late trading, albeit 29% down this week and 58% lower in the year to date.
However there are still many concerns about the bank's future, with worried depositors reported to be withdrawing funds and overloading its customer helpline.
Belgian newspaper De Tijd reported customers had gone into Belgian branches to withdraw €300m from Dexia accounts. This excluded online transactions.
Dexia in Belgium holds some €80bn of deposits.
One French politician also expressed concern that the problems facing Dexia might contaminate other banks and hit already tight financing for local authorities.
Belgium's prime minister and finance minister have said Dexia savings were safe, with a government guarantee of €100,000 per account holder.
Dexia has been at the forefront of investor concerns over its exposure to potentially bad debt from Europe's most indebted countries. With the markets bracing for a Greek debt default soon, investors are concerned about what bonds Europe's banks are holding and banks themselves have become reluctant to lend to one another.
Yesterday France and Belgium promised to prop up the bank and insure every cent of its deposits in response to a calamitous decline in the bank's share price over the past couple of days.
At one point yesterday the bank's share price plunged nearly 40%, prompting France and Belgium to launch crisis-management initiatives designed to prevent a complete rout.
Dexia stock began to plummet on Monday after Moody's warned it could be downgraded because of mounting difficulties it is facing getting short-term funding. In the wake of the warning, Dexia's board of directors called an emergency meeting.
Yesterday, Dexia's board of directors issued a statement ordering the bank's management to take steps, in consultation with the Belgian and French governments, "to resolve the structural problems weighing on the group's operational activities and offer new growth prospects."
Merkel backs recapitalisation of European banks
The German chancellor Angela Merkel has admitted that an urgent recapitalisation of Europe's banks may now be needed.
''If there is a common view that banks aren't sufficiently capitalised for the current market condition" a financial firewall should be built, Angela Merkel said in Brussels after a meeting with European Commission President Jose Manuel Barroso.
The International Monetary Fund has called on Europe to put up billions of euros to recapitalize its biggest banks.
Franco-Belgian bank Dexia is near collapse on worries it cannot withstand losses on the weak debt of some eurozone governments.
Merkel said "common guidelines" on the right amount of capitalisation were necessary, adding that this needed to be done urgently.
