And after late-night meetings, Britain secured voting rights which it hopes will safeguard its position as a major centre for Eurozone finance.
They agreed the single supervisory mechanism will see the ECB monitor the largest 200 Eurozone banks, with non-Eurozone member states allowed to join if they wish.
The deal represents a compromise between countries led by Germany which wanted the ECB to monitor a small number of banks, and those like France which wanted the central bank to supervise many more of the 6,000 banks in the currency area.
Overall the plan for a banking union is designed to do more to break the link between banks and their governments, and give countries like Germany peace of mind that a central authority has more say over how banks in peripheral economies operate. This is vital as the banking union will play a role in determining how banks could be bailed out by the European Stability Mechanism – which German taxpayers are a major contributor towards.
Chancellor George Osborne welcomed the agreement, and said Britain has secured vital safeguards – on the details of the rules and on dispute resolution, a majority of countries in the union and a majority of those outside of it must agree.
And a “non-discrimination article” has been included, promising not to damage London – or any other financial centre – outside the union as a hub for euro-based activities.
Still to be determined are a common resolution scheme and a common deposit insurance setup, which will be negotiated in the coming two years.
ECB president Mario Draghi said “the agreement marks an important step towards a stable economic and monetary union, and towards further European integration.
And the European Banking Federation agreed, arguing it is “of paramount importance to ensure financial stability and safeguard a level playing field between banks under the mechanism.”
WHAT HAS BEEN AGREED?
The biggest 200 Eurozone banks will be monitored by the ECB, rather than local regulators
They are banks with assets of at least €30bn (£24.35bn), or with assets equal to one-fifth or more of their country’s economic output
That means the banks whose collapse could cause most trouble are monitored centrally, but German fears over excessive central supervision of its mid-sized banks are also calmed
All 27 EU nations approved the plan
But it will only affect Eurozone members, plus those others who opt in at a later date
Britain wanted to make sure it could not lose its positional as a key centre for euro-based finance
So a non-discrimination clause has been inserted which the government hopes will protect the UK from any efforts to “on shore” euro activities
The technical details will be decided by a “dual majority” system, where a majority of those in the banking union and a majority of those outside it need to approve the rules
But this is just the single supervisory mechanism – not the full banking union just yet
For that, the countries will need to agree a communal deposit protection scheme and a common resolution regime for failed banks is also needed
George Osborne said that will take another two years of negotiation
But when it is agree, the bailout funds will be able to centrally recapitalise troubled banks, rather than going through governments as they do now