Oct. 10 (Bloomberg) -- Finance ministers and central bankers from the Group of Seven nations signaled reluctance to adopt a coordinated effort to shore up banks, risking a deeper crisis of confidence after this week's crash in global stock markets.

As equities worldwide suffered their worst week since the 1970s, officials gathering in Washington said they were seeking new ways to stem the meltdown. Still, they argued that tailoring efforts to the needs of individual nations was better than a cross-border plan.

The G-7 is considering including in its statement saying that no bank of systemic importance will be allowed to fail, and may outline principles all nations should follow, two European officials told reporters in Washington. Still, the group is unlikely today to endorse a U.K.-style commitment to guarantee loans between banks, an official from a G-7 member said.

``Don't imagine we'll have a harmonized response that will be the same for everyone because you can't apply the same method to different market situations,'' French Finance Minister Christine Lagarde said. German Finance Minister Peer Steinbrueck said ``solutions may be different from country to country.''

Investors and economists have urged officials to step up their efforts to protect banks as a credit freeze threatens to choke off lending to companies and households and send the world economy into a deep recession.

IMF's Lipsky

International Monetary Fund First Deputy Managing Director John Lipsky, in a Bloomberg Radio interview today, urged ``decisive and coherent'' action. Still, he also said ``it would be unrealistic to expect that there would be some grand plan unveiled that would solve all the problems.''

Unprecedented interest-rate cuts and bank bailouts haven't quelled the panic in markets, putting officials under pressure to pull even more policy levers today or risk exacerbating the financial and economic turmoil. Among options being discussed today: Pumping taxpayer funds into loss-ridden banks and guaranteeing their deposits and lending between them.

The Standard & Poor's 500 Stock Index slid 5.9 percent to 856.66 at 1:37 p.m. in New York, capping off a 27 percent plunge so far this month. The European Dow Jones Stoxx 600 Index has lost 20 percent in that period, and Japan's Nikkei 225 Stock Average has slumped 27 percent since Oct. 1.

`Act Now'

``Governments must act now and decisively to restore confidence, otherwise we are in for serious trouble and a long- run recession,'' said Moorad Choudhry, head of treasury at Europe Arab Bank Plc in London.

The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy are meeting for the first time since the financial crisis intensified last month. They will release a statement at about 6 p.m.

Officials said they recognized the need to step up, with Bundesbank President Axel Weber saying that ``doing nothing is not an option at this stage.'' U.K. Chancellor of the Exchequer Alistair Darling told Bloomberg Television that ``it is absolutely essential that the world's largest economies act together, and they act together now.''

President George W. Bush addressed his nation, pledging the administration ``will continue to act.''

At one point, Italian Prime Minister Silvio Berlusconi said governments may shut markets, only to reverse himself later. White House spokesman Tony Fratto said there would be no interference in market openings or closings.

European Summit

Bush will meet with the G-7 tomorrow, an echo of former President Bill Clinton's visit with the group in 1998 amid the Russian debt default and collapse of hedge fund Long Term Capital Management LP. The broader Group of 20 will also convene tomorrow. European leaders will hold a summit the following day in Paris, a G-7 official said on condition of anonymity.

Former Federal Reserve Chairman Paul Volcker urged that ``all of them now admit or all of them own up to the fact their own banks are going to need support,'' in an interview with PBS Television's Charlie Rose show yesterday.

The G-7's dilemma is that even after a battery of policy actions, money markets remain gridlocked as banks shun lending to each other for fear they will lose the money or because they need it themselves. The cost of borrowing dollars for three months in London today rose to its highest this year and the rate in Tokyo jumped to the highest since 1998.

Darling wants countries to guarantee lending between banks, either by turning central banks into clearing houses for the loans or having governments back them. That would ``be an effective way of easing the crisis,'' said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York.

U.K. Plan

Fratto said today ``we're reviewing'' the U.K. proposal. Treasury Secretary Henry Paulson two days ago stopped short of endorsing the plan when asked about it in a press conference.

The U.S. already plans to follow Darling in another way by purchasing stakes in a wide range of banks within weeks, tapping authority included in the $700 billion rescue package passed by Congress last week.

The U.K. is engineering a 50 billion pound ($87 billion) strategy to partly nationalize at least eight British banks. Japanese lawmakers are also considering reviving a law that expired in March that would allow them to inject public money into regional financial companies.

German Reversal

Having previously maintained that German banks were sound, Steinbrueck said Germany's approach to saving them on a case-by- case basis was no longer working and that a broader strategy was required. ``We have to move away from discretionary behavior,'' he said.

The U.S.'s Federal Deposit Insurance Corp. said today it has ``significant latitude'' to take further steps to support banks and their depositors using emergency powers. European leaders have already promised to protect savers.

Steinbrueck and Lagarde cautioned against expectations of a common strategy from the G-7. Lagarde said it is possible to ``show unity and coordinated proposals'' without a ``harmonized response.''

If governments fail, central banks may have more work to do after already executing emergency rate cuts this week. New York University professor Nouriel Roubini recommended they slash interest rates by at least 1.5 percentage points to avert a depression.

To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net;

Last Updated: October 10, 2008 14:15 EDT