The German cabinet approved a banking rescue package worth up to 500 billion euros ($679.3 billion) on Monday, coalition sources said, taking a sector-wide approach after less comprehensive steps failed to calm markets.
The package comprised up to 400 billion euros in bank guarantees and as much as 100 billion euros in state funds, a government paper showed.
Of the 100 billion euros, a maximum of 80 billion would be available for recapitalisations and 20 billion could be provided if banks were to take up the offer of guarantees.
Finance Minister Peer Steinbrueck said the package offered a sweeping response to financial sector troubles in Europe's largest economy, which is teetering on the brink of recession.
"This is the response we must give to move from case-by-case crisis management to a comprehensive solution for the whole financial sector," Steinbrueck told mass-selling daily newspaper Bild. "The markets need to get their confidence back."
The euro <EUR=> rose against the dollar on the news the cabinet had approved the plan. By 1220 GMT, Germany's DAX leading share index <.GDAXI> was trading 6.81 percent higher, rebounding after falling last week to a 3-year low.
Chancellor Angela Merkel was due to give details of the plan at 3 p.m. (1300 GMT), the government said. Steinbrueck, who will hold a news conference a half hour later, said he hoped parliament would swiftly approve the package.
A draft bill on the package showed it would allow the Finance Ministry to provide up to 400 billion euros in guarantees for banks to help them get over the liquidity squeeze in the interbank market and to support refinancing efforts.
Germany initially pledged help for banks on a case-by-case basis, but changed course and decided to adopt a sector-wide plan after the financial crisis hit fever pitch last week.
"The aim of this draft law is, through a rescue package, to create a workable instrument to overcome the liquidity bottlenecks in the German interbank market and to strengthen the the stability of the German financial market," the bill read.
The plan would set up a "financial market stabilisation fund" to strengthen the capital base of institutions, which will be in place until the end of 2009. The fund could take on risk positions acquired by banks before Oct. 13, 2008.
The plan also gives the Finance Ministry power to influence decisions in a bank's strategy, including over the composition of its equity capital and its dividend policy.
German bank guarantees would run until Dec. 31, 2009, according to the draft, in line with guidelines agreed on Sunday by European leaders, who pledged that any solvent institution would get public funding if needed.
