Months of heated negotiations finally came to fruition on Wednesday when finance ministers announced they had reached an agreement on how to set up a central body to deal with failing banks.

The so-called Single Resolution Mechanism will have the power to close or scale down failing banks before they damage the wider economy. It will make up the bloc's banking union alongside an already agreed supervisory regime, which will be overseen by the European Central Bank.

"Momentous day for banking union," EU Financial Markets Commissioner Michel Barnier wrote on Twitter after some 12 hours of talks.

"We are producing revolutionary changes to Europe's banking system so that tax payers will not foot the bill in banking crises, ending an era of massive bailouts," Barnier said.

Under the deal a fund will be set up to serve as a backstop if a bank should fail, in a bid to put an end to taxpayer-funded bailouts. It will be financed by a 55 billion euro ($75 billion) levy on banks over ten years.

In the meantime bank rescues will reportedly either be paid for by member states or from the eurozone's own rescue fund, the European Stability Mechanism.

Awaiting final approval

EU leaders had been under intense pressure to agree the deal, which will need to be approved by EU leaders at a summit on Thursday or Friday. It will then need to go to the European Parliament for negotiations on a final agreement.

"We can now say that we have done good work for this year," German Finance Minister Wolfgang Schäuble said after the deal was announced.

"We have a good basis to continue working in the next one."

Wednesday's deal is the product of months of talks aimed at creating a system to prevent a repeat of the devastating bank bailouts which followed the global financial crisis.

ccp/av (AFP, AP, dpa)