Germany is to guarantee all private savings accounts as a big bank, Hypo Real Estate, struggles to stay in business.
More than 500 billion euros ($US693 billion) in private deposit accounts are involved.
Germany's second-biggest commercial property lender, Hypo Real Estate, is in trouble after a 35 billion euro rescue plan collapsed after financing problems emerged.
The BBC reports that the government is under intense pressure to save the bank before markets reopen on Monday.
Chancellor Angela Merkel says finance managers should be held accountable for what she describes as irresponsible behaviour. She says the government will not allow problems at the mortgage lender to infect the entire banking system.
Finance Minister Peer Steinbrueck said he was "appalled" that the problems had not been revealed earlier.
Hypo Real Estate relies heavily on borrowing from other banks to fund its business and has suffered badly as banks have become increasingly cautious about lending to each other.
As Germany bolsters its banks, other European governments are doing the same.
Belgian Prime Minister Yves Leterme has promised an imminent announcement on whether to complete the nationalisation of the giant Fortis financial group in Belgium.
Earlier, French bank BNP Paribas announced it would take control of ailing finance group Fortis' operations in Belgium and Luxembourg, with both governments retaining a stake.
Iceland's government is reported to be considering a multibillion-dollar injection into the banking system, having bailed out the country's third-biggest bank, Glitnir, last week.
On Saturday, European leaders at a Paris summit stopped short of offering a United States-style bank bailout plan.
However, Italian Economy Minister Giulio Tremonti said on Sunday that the crisis still had a long way to run.
David Tripe, the director of the Centre for Banking Studies at Massey University, says an underwriting scheme in New Zealand probably is not needed, as there is no obvious liquidity concerns for banks in this country.