European lawmakers Thursday agreed the first step in an ambitious EU banking union scheme, giving the European Central Bank the power to oversee the eurozone's biggest banks.
The legislation, agreed by 556 votes in favour and 54 against, will enable the ECB to take over centralised bank supervision in a year following stress tests of banks' balance sheets.
The step is the first pillar in a wider plan towards safer and more accountable banking. It had been broadly agreed in March by members of the 17-nation eurozone and Parliament but had not been put to the vote.
The banking supervisor will directly oversee 150 of Europe's biggest banks, including most bank assets in the 17-country eurozone. Other nations in the 28-member European Union that do not use the single currency will be able to opt in later.
In Riga, ECB president Mario Dragi welcomed the vote on the Single Supervisory Mechanism (SSM).
"The ECB and the Parliament share a common purpose in ensuring proper accountability arrangements for the SSM," he said.
MEPs had postponed this week's vote by 48 hours, demanding more transparency and control, including a say in approving the chair and vice-chair of the supervisory board and the possibility of launching probes into possible errors.
Individual MEPs will also be able to question the supervisor in writing and receive a rapid reply.
The parliament also insisted on the strict division of ECB staff between monetary policy and supervision.
The European Parliament green light "is a lynchpin of a deeper economic and monetary union," said European Commission President Jose Manuel Barosso.
"Now our attention must turn urgently to the Single Resolution Mechanism," he said, referring to the second pillar in the scheme for banking union.
The resolution mechanism would give the Commission the power to shut down any of the eurozone's 6,000-plus banks even if national authorities disagreed.
In the past, failing banks have sapped government coffers and sent nations such as Ireland rushing for assistance.
Banking union would shift the burden of dealing with failing banks from taxpayers with new rules forcing creditors to take losses and a resolution fund created through mandatory levies on the banks.
But there is scepticism in Germany about whether the mechanism is compatible with current EU treaties.
The EU's Internal Markets Commissioner Michel Barnier said that "with this key piece of legislation, we are not only strengthening our banks and the financial stability of the eurozone, we are also strengthening economic integration."
Saying it will be five years this week since Lehman Brothers filed for bankruptcy, triggering the biggest global financial crisis in modern history, Barnier said the supervisory mechanism was an essential part of "rules to better protect European citizens and to prevent future crises."