The bulk of the funds -- €320 billion -- will be used to guarantee bank debt issued before the end of 2009 with a duration of less than five years. The remainder will be used to inject capital directly into banks through the purchase of subordinated debt and preferred shares.

"The state will bring its guarantee to the loans that banks require," Sarkozy told reporters in Paris, just one day after Eurogroup leaders met and agreed to a general set of principles to govern financial rescue packages throughout Europe.

In the draft bill, no collateral requirements were yet identified, but a French press report suggests it will focus on riskier assets that cannot be used in repos with the European Central Bank.

"Nothing will be spared to prevent the crisis getting any worse," said Sarkozy.

The moves are designed to ensure no substantially sized banks will fail.

"The French state will not let any banking establishment go bankrupt," Sarkozy added.

The hope is to eliminate intra-bank lending fears. Overnight euro libor traded near the ECB's target on Monday at 3.7750%, but three-month libor remains elevated at 5.29875%.

"Money is not circulating any more," Sarkozy said. "It is therefore necessary to create the conditions for it to circulate again and naturally between banks first as they are at the heart of financing the economy."

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