EUROPEAN politicians finally struck a deal on the final piece of the ambitious banking union plan early after marathon talks.

The compromise, which is a provisional agreement, ended weeks of tough talks between governments and the European Parliament over common rules on shutting failing banks and deciding who will foot the bill.

Once the deal is formally signed off by the parliament and national governments, the new law will create a single system – the Single Resolution Mechanism – backed up by a €55bn shared fund built up by levies on banks.

The European Central Bank (ECB) will now have the power to close failing lenders, giving it further power as it prepares to become the supervisor of all eurozone banks later in the year.

But critics of the plan have pointed out that while the money needed to shut a bank will come from the fund, Europe’s bailout pot will not be relied upon as a back-up to raise credit.

Experts have also questioned the relatively small size of the shared fund.

European Commission president Jose Manuel Barroso said the agreement would strengthen confidence and stability in the financial markets and help restore lending to the economy.

Internal market and services commissioner Michel Barnier said the compromise would pave the way for the completion of the banking union project.

“This would not have been possible without the assiduous work and spirit of compromise demonstrated by both co-legislators,” Mr Barnier said.

“It represents a major step towards the alignment of both banking supervision and banking resolution at a central level, while involving all relevant national players.”

The agreement allows for the fund to be built up over eight years, instead of the first mooted intention of doing it over a decade. But it remains longer than the ECB hoped for.

The fund will be able to borrow against future bank levies but will not be able to rely on the eurozone bailout fund to raise credit. Some governments, including Ireland’s, had originally wanted a common government financing option, such as the European Stability Mechanism, to serve as a back-up to the fund.