BRUSSELS (AP) -- The European Union on Thursday took a major step towards one of the most important transfers of financial authority away from national capitals when its member states agreed to create a single supervisor for their banks.
The political agreement reached at dawn by finance ministers augured well ahead of the evening start of a summit of the 27 government leaders seeking to set up a banking union.
"Piece by piece, brick by brick, the banking union will be built on this first fundamental step today," said EU Commissioner Michel Barnier.
The political agreement, which still has be approved by parliament, will make the European Central Bank the supervisor for banks in the 17 EU countries that use the euro and any other country in the union that wants to opt in. It will give the ECB sweeping powers and also pave the way for Europe's bailout fund to give direct aid to ailing banks — a measure that is vital to helping Europe dig out of its three-year-old debt crisis.
The EU had promised markets to have an outline deal by New Year, and the finance ministers delivered — after yet another all-night emergency session.
"We stick to what we promised," said German Finance Minister Wolfgang Schaeuble. "Painstakingly, we advance the cause of Europe."
But markets seemed to largely shrug off the deal, perhaps because the broad strokes had been known for some time.
Under the deal, banks with more than €30 billion ($39 billion) in assets or those that represent 20 percent of gross domestic product of their national economies will be placed under the direct oversight of the European Central Bank. The ECB can also decide to supervise any other bank it wants.
The deal gives the ECB broad powers, including the ability to grant and withdraw banking licenses, investigate institutions, and financially sanction banks that don't follow the rules.
The supervisor will start work in March of next year and will slowly ramp up its responsibilities until it is fully operational a year later.
It was not immediately clear how many banks would fall under its direct supervision; officials gave figures that ranged from 100 to 200 banks, but they also stressed that the central bank would have the ultimate responsibility for all Eurozone banks and lenders in any other EU countries that sign up. In effect, national authorities will simply be carrying out the ECB's instructions.
But perhaps most important is that the new system paves the way for Europe's rescue fund to directly come to the aid of the continent's troubled banks.
"It's real progress that opens up interesting possibilities," said French Finance Minister Pierre Moscovici.
It's not yet clear when banks will be able to start asking for direct aid.
That step is crucial because weak banks remain at the core of Europe's financial problems. Many are teetering on the brink of bankruptcy after the investments they made up in boom times plummeted in value. Some governments have stepped in to save their banks, only to worsen their own finances in the process.
European leaders want to shield troubled governments from the burden of supporting their banks. That would be a huge relief to countries like Spain, which are facing the prospect of taking on enormous debts — and worrying markets — in order to bail out their banks.
Under the new system, it would become tougher for banks to run afoul of good governance.
"It is about supervising together, taking measures at a European scale, knowing we are dealing with thousands of banks," Barnier said.
The magnitude of the deal was reflected in the in size of the fight: Concerns ranged from which banks would be covered to how the ECB would manage to insulate its monetary responsibilities from the new powers to how the deal would affect EU countries that chose not to submit their banks to the ECB's oversight.
This last point was a major contention: Countries that don't use the euro worried their voices in the body that creates banking regulation — the European Banking Authority — would be drowned out by the new euro-machine, particularly since countries with other currencies can opt into the supervision.
The EBA sets all of the technical rules that govern EU banking, and Britain, in particular — a non-euro country with Europe's largest banking sector — was nervous that the new supervision would mean all the banks under the ECB would vote together at the EBA, effectively steamrolling everyone else.
Ministers reached a compromise that ensures that measures can't pass in the EBA without at least some support from countries outside of the ECB's supervision.