The European Union's new banking watchdog, called the Single Supervisory Mechanism (SSM), was on Tuesday cleared to come into force November 2014. The move was announced by Lithuanian Finance Minister Rimantas Sadzius, whose country holds the rotating EU presidency.

“I'm very glad to note the adoption of this very important single supervisory mechanism package, thus establishing one of the main elements of Europe's banking union,” said Sadzius on the sidelines of a meeting of EU finance ministers in Luxembourg.

The SSM was originally planned to start early next year. But differences over its role and how it would shape relations between eurozone countries and non-euro EU members held up an agreement.

Under the agreement reached in Luxembourg, the SSM is to be run by the European Central Bank (ECB). Provisions have been made to ensure that the 11 non-euro members of the EU are not outvoted by the 17 eurozone countries, with any action requiring a double majority in both camps.

The Single Supervisory Mechanism is just a first step toward full banking union sought by the 28 members of the European Union. EU Market Regulation Commissioner Michel Barnier said it was now necessary to establish common rules to close failing banks and agree on a deposit guarantee fund to protect savers.

“We now need to go to the end of this work to be completely credible and deliver what is necessary,” he added.

However, the so-called Single Resolution Mechanism for troubled banks is even more controversial than the SSM. Many EU members, including Germany, are reluctant to cede control over their banks to a single EU body and wonder how to finance a banking fund for possible bank bailouts in future.

The EU hopes to reach agreement on the issue by the end of the year to ensure the legislation reaches the European Parliament before the end of its current term in May.

uhe/ph (AFP, dpa, AP)