Berlin: The leaders of the European Union have endorsed a deal reached by their finance ministers to set up a single supervisory body for the euro zone's largest banks under the leadership of the European Central Bank (ECB).
The heads of state and government of the 27-nation EU, who opened a two-day summit in Brussels yesterday, hailed the agreement among the finance ministers a few hours earlier on a centralised oversight for the European banks as "a major step towards" a banking union in the euro area.
In a statement issued after eight hours' discussions, which lasted late into the night, the EU leaders called for further progress towards a "more integrated financial network", which will help "restore normal lending, improve competitiveness and bring about the necessary adjustment to our economies."
The new banking supervisory body is aimed at preventing the collapse of system relevant banks and thereby causing contagion across the euro zone.
Around 200 banks with more than 30 billion euros in assets will be placed under its supervision when it is expected to start its operation in Mach, 2014.
The ECB has been given powers to intervene directly in any euro zone banks which violate the rules.
The agreement among the finance ministers also opens the way for the euro zone's permanent bailout fund, the European Stability Mechanism (ESM) to recapitalise euro zones troubled banks directly.
The EU leaders discussed the plans for a European banking resolution fund, which will help rescue or wind up struggling banks.
They agreed that when the single supervisory mechanism for the euro zone banks comes into operation, a single resolution mechanism will be necessary to deal with the banks in the participating countries.
It should safeguard financial stability and ensure an effective framework for resolving financial institutions while protecting tax payers in the context of banking crises, the statement said.
"The single resolution mechanism should be based on contributions by the financial sector itself and include appropriate and effective backstop arrangements," the statement said.
German Chancellor Angela Merkel said that this winding up mechanism should not be at the cost of the taxpayer and it should be set up in such a way that those who are responsible for the failure of a bank also will bear the costs.
Summit host Herman Van Rompuy, President of the European Council, expressed satisfaction over the deal on a central supervisory body for banks and an agreement by the finance ministers on Wednesday to release a long delayed tranche of 34.3 billion euros bailout funds for debt-stricken Greece.
"The worst is over for the euro zone, even though a lot of work remains. But our hard work is finally beginning to bear fruits," he said at the conclusion of Thursday's session.