Economy commissioner Joaquin Almunia said mimicking the $700bn US plan to unfreeze credit markets was unnecessary because the situation was “less acute”.

Bolstering supervision rules would help boost confidence and stabilise volatile markets, Mr Almunia added.

The US Treasury and Federal Reserve are seeking rescue fund approval.

It could buy bad debt from financial institutions with “significant operations in the US”.

The fund would aim to sell off these mortgage-related debts in the future when, the Treasury says, their value might have risen.

‘Confidence fall’

France’s state secretary for European affairs, Jean-Pierre Jouyet, said the European financial system was “still stable and doesn’t need this kind of measure”.

“The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped” Joaquin Almunia

“We have to be prepared to intervene where necessary,” he said.

Mr Jouyet, speaking on behalf of the French EU presidency, said increased financial regulation was crucial.

“This laissez-faire attitude will not benefit anyone. It’s too late for that. We now need to consider the extent of the risk, the power of the regulatory authorities and the type of intervention.”

Mr Almunia said the “dramatic fall in confidence” had been created by banks’ lack of transparency and regulators inability to see what was going on.

Banks have been reluctant to lend to each other – prompting central banks to inject billions into global markets to increase liquidity.

“The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped,” Mr Almunia said.

‘Urgent’

In October the European Commission will propose new rules governing how much banks must keep in reserves, and set rule son how regulators should act if a bank is in danger of collapse.

Credit agencies – which have been partly blamed for the credit crisis for the way they have listed risky debts as safe – are also likely to become an EU target.

Better financial rules were “more urgent than ever before” and “could go a long way to restore confidence quicker than expected and limit the damage to our economies,” Mr Almunia said.

News reported by The BBC