The German government and banks rushed to the rescue of Hypo Real Estate late last night as the country's second-largest mortgage lender teetered on the precipice of collapse and threatened to whip up the winds of a financial storm already rampaging through the global financial system.

Earlier yesterday, the German government also moved to guarantee all private savings accounts to help shore up shaky confidence in Europe's biggest economy.

Under the deal, commercial banks and insurers will provide an extra 15bn (£11.7bn) in liquidity for the stricken lender on top of the 35bn they already committed together with the Bundesbank.

The German government, the Bundesbank as well as a cluster of major banks and insurers had last night been locked in crisis talks to save the bank after a state- brokered 35bn bailout of Hypo failed to materialise.

In this latest financial quake, Hypo's problems appear to have stemmed from its acquisition last year of Depfa, a Dublin-based lender.

Depfa had underwritten a package of bonds which were soon downgraded by ratings agencies and under contract obliged Depfa to buy the bonds back - a sequence of events that created almost immediate liquidity problems at Hypo.

The German banks involved in the initial failed bailout soon realised that 35bn was not enough to sustain the bank and they abandoned the plan. It became clear they would need 50bn by the end of this year, and another 10bn in 2009.

Meanwhile, news of the upgraded rescue deal came as BNP Paribas agreed with the governments of Belgium and Luxembourg to take control of the key remaining assets of troubled financial group Fortis.

Belgian Prime Minister Yves Leterme had said he was looking for a new owner for Fortis to restore confidence in the company before the opening of markets this morning. The Netherlands effectively nationalised the Dutch operations of Fortis on Friday after a rescue deal with Belgium and Luxembourg broke down.

At the same time, Germany's guarantee of all personal bank accounts in the country - worth around 500bn, only slightly less than the $700bn US bailout package - stops short of recent moves in Ireland and Greece, which guaranteed other liabilities, such as commercial loans.

However, it was also a political move in a nation of cautious and determined savers, whose citizens largely abhor the concept of credit.

By nature risk averse and cautious with money, the majority Germans are hugely unhappy about having to pay billions for bad mortgage bets made by their banks.

Unlike in fellow European Union countries like Spain, Ireland and the UK, there has been no real-estate bubble in Germany.

Nonetheless, Germany's own flagship institution, Deutsche Bank, had enormous write-downs of more than $1bn from the earlier stages of the crisis. Now, like other large European banks, Deutsche Bank is highly leveraged.

The German government had yesterday signalled that Hypo was too big to be allowed to fail, and Merkel insisted the government would move to avoid the problems at Hypo bleeding into the rest the economy and the German banking system.

A Hypo spokesman was clear about what was at stake. "We are fighting for the future existence of the company," he said Merkel also warned that some managers at Hypo might be held accountable for what she termed irresponsible behaviour. She said the rescue plan would ensure that anyone who made reckless market decisions would be made to answer for their actions.

"The federal government will make sure of that," she said. "That is our debt to the taxpayers."

Peer Steinbrueck, the German finance minister, added: "I'm pretty shocked that this bank's management has revealed another liquidity gap of an unforeseen size."

The news of Hypo's rerscue will come as a welcome shot in arm for investors today, particularly in wake of Friday's agreed bailout ion the US, as the global financial system struggles to cope with an unprecedented crisis of confidence.

Yesterday's rescue came a day after Europe's four major economic powers called for tighter regulation and co-ordinated response to the global meltdown in a bid to stop the bleeding wrought by turmoil on Wall Street - though Germany, France, the UK and Italy shied away from advocating a massive bailout akin to that in the US, where Congress approved the $700bn plan last week.

Meanwhile, the Iclandic government yesterday also scrambled to save its own failing banks.

Iceland, particularly hard-hit by the credit crunch, government officials and banking chiefs were planning a possible rescue plan for the country's overstretched commercial banks.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of 100bn dwarfing the tiny country's gross domestic product of 14bn.

The government last week took over Iceland's third- largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating.