Image caption Europe's finance ministers have expressed their optimism over the outcome of the talks

Eurozone finance ministers have agreed on a long-awaited pact on how to deal with failing banks in the region.

It aims to create a 55bn euro ($75bn; £46bn) fund - financed by the banking industry, over the next 10 years.

The fund would be backed by a new agency, which will decide on how to deal with failing banks.

European leaders - who meet at a summit on Thursday and Friday - want to sign off on a deal so that this banking union can start in 2015.

For at least 10 years - and possibly forever - it is individual member states that will remain the ultimate underwriters of the costs when one of their banks fail, rather than eurozone members collectively

The deal is part of wider efforts by the region's economies towards building a banking union as they look to avoid taxpayer-funded bank bailouts.

However, there is still disagreement over how banks will be wound up or re-capitalised in the early years while the new arrangements for banking union are taking shape.

Bridge financing could come either from the member states or from the eurozone's own rescue fund, the European Stability Mechanism. However, Germany has been insistent that eurozone money should not be used to shore up failed banks.

Chris Morris, the BBC's Europe correspondent, said the agreement was "on paper, probably the biggest centralisation of power in the eurozone since the launch of the euro. But some people say they are creating banking union in name only.

"There are different countries coming at it with different points of view," he said.

Three pillars

The proposed banking union consists of three parts or the so-called three pillars.

These are a common banking supervisor - the European Central Bank (ECB), which will be given the power to monitor the health of, and the risks taken, by all the major banks within the eurozone.

According to an EU proposal, the ECB will "have direct oversight of eurozone banks, although in a differentiated way and in close co-operation with national supervisory authorities".

It will also intervene if any of the banks gets into trouble.

The second part is the Single Resolution Mechanism. This means that if a bank anywhere in the eurozone gets into trouble, the process of bailing it out - or even letting it go bust - would be managed by a common "resolution authority".

The final pillar of the proposed unions involves a common deposit guarantee, which means that anyone with an ordinary bank account anywhere in the eurozone would have their money - up to a limit of 100,000 euros (£84,000; $138,000) - guaranteed by a common eurozone fund.

However, BBC business editor Robert Peston said national governments have not completely handed over power to determine the fate of any future struggling bank.

He said: "It is striking that finance ministers have not wholly delegated the decision-making on whether to close or take over an ailing bank to a new resolution board they are creating.

"They have reserved powers to determine the fate of struggling banks for themselves - which does not augur well for the most speedy action in a crisis."

'Stable growth'

Once EU leaders agree a deal, the proposal will go to the European Parliament for what are also expected to be tough negotiations on the final form of banking union.

The 17-nation eurozone is moving to strengthen its banking sector by introducing common rules and protections.

The move has come after the recent crisis forced a number of European governments to spend large sums of money supporting banks whose lending had turned bad.

Over the main years of the crisis, European governments spent 1.5 trillion euros (£1.3tn; $2tn) propping up the banks.

The idea of a banking union is to make huge taxpayer-funded bank bailouts a thing of the past.

"If we continue... on the path toward banking union then we will be able to continue the stabilization of the European currency as the basis for a return to stable growth in Europe," said Wolfgang Schaeuble, Germany's finance minister.