Although the propping up of American financial institutions like AIG and Freddie Mac with government support has made news around the globe, similar efforts in Europe are of no less significance. After the rescue of Belgian-Dutch banking giant Fortis by the governments of Belgium, Netherlands and Luxembourg (Benelux) last weekend, another financial firm has joined this roster of beleaguered companies being rescued with public money. See: Benelux governments inject €11.2 billion to save Fortis

Governments in Belgium, France and Luxembourg announced yesterday that they were stepping in to rescue ailing French-Belgian bank Dexia, injecting almost €6.4 billion ($9.2 billion or £5 billion) into the business to keep it afloat.

Belgian authorities and shareholders will invest €3 billion in Dexia, while the French government - through its investment arm Caisse des Depots (CDC) that owns just over 10 per cent of Dexia - will provide a further €3 billion. New equity will be issued to the Belgian and French authorities, and the Luxembourg government will help shore up the group's balance sheet by subscribing for €376 million of newly issued convertible bonds.

Following the deal, CDS will become Dexia's biggest shareholder, with a 19.3 per cent stake. The French government and the Belgian federal government will each hold 5.7 per cent and three Belgian regional authorities will also hold a combined 5.7 per cent.

"Due to the significant deterioration in the business and market environment and the financial distress of a number of financial services companies, Dexia made a careful assessment of its situation and decided to take decisive action," the bank said in a statement. It added that its CEO Axel Miller, and chairman, Pierre Richard, would resign after "drawing conclusions from the current financial crisis and its impact on the Dexia group". They will remain with the company until successors have been appointed.

The bailout package of what is one of the top 20 banking groups in Europe with more than 36,500 employees in 39 countries, comes as the fallout of the credit crisis continues to spread from the US and the UK to other major economies.

Dexia's core business of lending to local governments and infrastructure projects had remained strong in the first half of the year, but the company's been hurt by the need to inject fresh capital into bond insurer FSA.

Yesterday, Dexia said it would restructure a $5 billion unsecured liquidity line to FSA, which should reduce the risk associated with the facility. The bank also said it will inject more cash into FSA to compensate for any losses above the $316 million disclosed in June. But it added any capital injection would "under no circumstances" exceed $500 million.

A fortnight ago, Dexia said it expected to have losses of around €350 million to failed investment bank Lehman Brothers. It said the bailout package would allow it to remain "one of the better capitalised banks in Europe" even if unprecedented market volatility devalues its equity portfolios and securities.