France Proposes a €300bn Saftey Net for European Banks in Crisis

France surprised financial markets around the world by proposing a €300bn (£238bn) financial "safety net" for the European banking system, representing the continent's most radical and far-reaching solution yet.

It is thought the cash could be used either to help recapitalise banks or to create a US-style deposit for illiquid mortgage securities. However, sources said Germany did not approve, and French finance minister Christine Lagarde later denied such sweeping proposals were under consideration.

Meanwhile the Bank of England is thought to be moving toward a plan to widen the criteria on what banks can use as collateral for loans from the Government.

At the moment only triple A-rated mortgages written before December 2007 and packaged into securities can be used to access funding from the Special Liquidity Scheme. But there is a rising expectation that the Bank will allow other assets such as corporate loans to be included.

The optimism comes after chief executives of Britain's biggest banks raised the subject of widening collateral requirements with the chancellor, Alistair Darling, at a meeting on Tuesday. The Government would still only accept triple-A rated assets, sources said.

"The SLS is cumbersome. It is difficult to package up mortgages for securitisation. The banks have been saying for months we need a funding scheme which takes in a far broader range of assets," a banker said.