In Italy, shares in bank giant UniCredit SpA were suspended several times yesterday, after the company announced its decision to raise 6.6 billion euros in fresh capital – something the UniCredit’s board previously said it would not do. 

“We made some mistakes in evaluating the market scenario, that’s absolutely clear to us,” Chief Executive Officer Alessandro Profumo told Bloomberg News. The company said “waves of market turbulence,” as well as an “unprecedented lack of trust among financial institutions” forced management’s hand.

The fresh round of European collapses was the second domino to fall behind an American contagion that claimed The Bear Stearns Cos. Inc. and Lehman Bros. Holdings Inc. (OTC: LEHMQ), and forced a bailout of mortgage giants Fannie Mae (FNM), Freddie Mac (FRE) and American International Group (AIG).

"Everyone is losing confidence," Mark Tan, who helps manage about $20 billion of equities and bonds at UOB Asset Management in Singapore, told The Associated Press. "The problem now is that the lack of foreign confidence could affect the Asian consumer, which would lead to a bigger slowdown in Asia than expected."

Central Bank Panic

A round of chaotic collapses over the weekend spurred central banks and policymakers around the world into action.

German Chancellor Angela Merkel guaranteed private deposit accounts in a desperate bid to restore confidence after the rescue of Hypo Real Estate. Austria, Denmark, Ireland, and Sweden have all raised the limits on guaranteed savings, and there is growing speculation that the United Kingdom will soon join them.

However, Germany’s decision, in particular, came as a surprise as it came just one day after Chancellor Merkel joined French President Nicolas Sarkozy, U.K. Prime Minister Gordon Brown, and Italian Prime Minister Silvio Berlusconi in condemning Ireland’s decision to offer blanket protection for its deposits.

In fact, EU competition authorities had already agreed to challenge Ireland’s decision as a competition distorting measure.

“It would have been advisable to properly consult other EU authorities on the envisaged legislative plans,” the European Central Bank said yesterday. The ECB is also concerned the guarantee provides the lenders covered by the scheme with “preferential treatment.”

The ECB, the Bank of England and the Swiss National Bank offered more than $60 billion to markets yesterday, hoping to ensure that the financial sector remains well oiled.

The ECB offered $50 billion in overnight money, while the Bank of England offered $10 billion.

Financial institutions borrowed $33.9 billion (24.6 billion euros) on Oct. 3 – the most since February 2001.

Meanwhile, back across the pond, the U.S. Federal Reserve said it would make hundreds of billions of dollars more available through its Term Auction Facility (TAF). The Fed said it would expand its 28-day and 84-day TAF operations to $150 billion each. The central bank will also begin paying interest on bank reserves.