The UK is not taking part in the plan, but banks and officials are concerned that the new setup could harm British banks by subjecting them to different rules than their European competitors.
Although Britain will still be involved in creating a European rule book for the industry, analysts fear international banks may favour a continental headquarters over a London base if the UK is put at a disadvantage.
The plans will see the ECB supervise all Eurozone banks, particularly focusing on financial stability.
A Treasury spokesman welcomed the proposals as “an essential part of a stable single currency,” and insisted “a banking union for the Eurozone must also respect the integrity of the single market for the whole EU, and we’ll ensure the agreement on it does that.”
The British Bankers’ Association also expressed concern over the future of the single market.
But although the EC pledged to back the single market, officials and industry insiders are privately concerned that the EU will use the crisis to grab more power to shift the centre of European finance away from London.
Lawyers warned any distortions in the single market could end up pushing international banks out of London and over to the continent.
“UK-based banks with branches and cross-border services in Eurozone countries will not escape the new ECB supervisory regime,” said Paul Edmondson from CMS Cameron McKenna. “The question will arise whether international banks will opt for full ECB supervision either by moving headquarters into the Eurozone or by putting pressure on the UK to surrender national regulation.”