Europe is close to agreeing which type of banks will be supervised by a new single European banking regulator. However, one fundamental stumbling block remains: the European Central Bank’s power to overturn decisions by the new supervisory agency.

EU leaders have set themselves a January 1 deadline to find a compromise, but this is at risk as some governments fear losing control over their national banking systems. The plans, first set out in September, would set up a new bank supervisor as an agency within the ECB.

Sweden’s Finance Minister Anders Borg stated on the 11 th of December that it is now unlikely that Sweden, which is not in the Eurozone, would join the banking union in its current form, because the country would be ‘dominated’ by Eurozone members. The UK has also said it will not sign up. All 17 Eurozone countries are obliged to join the supervisory regime.

A single banking supervisor is the first step in creating a banking union and will eventually pave the way for the region’s rescue funds to directly recapitalise troubled banks.

Under the latest draft, European banks whose assets exceed 20% of their host state’s gross domestic product or have subsidiaries in at least three EU countries will come under ECB supervision. Banks with more than €30bn ($39bn) in assets may also automatically qualify for ECB supervision.