Following weeks of heavy losses for banking stocks across Europe, the Sunday Times in the UK reported Sunday that European officials are working on a "radical plan" to prevent a fresh pan-European credit crunch.
Without citing sources, the paper said officials from the European Central Bank and European Commission are considering offering central guarantees over certain types of debt issued by banks.
The paper goes onto say that the move comes after a number of European banks where shut out of international money markets.
The report comes after the head of the International Monetary Fund warned on Saturday that "urgent recapitalization" was needed for Europe’s banking industry.
“Developments this summer have indicated we are in a dangerous new phase. The stakes are clear. We risk seeing a fragile recovery derailed, so we should act now,” said Christine Largarde in a speech in Jackson Hole Wyoming on Saturday.
Investors are also worried about the prospects for the second Greek rescue package after Finland demanded collateral against any loans handed to the ailing euro zone member.
On Saturday, President Barack Obama and German Chancellor Angela Merkel spoke on the phone and agreed on the importance of "concerted action" to address current economic challenges and spur growth and job creation in the global economy.
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