He told reporters that EU leaders would, as agreed, wrap up by year's end a deal to adopt common banking supervision in the euro zone, whose implementation would follow in 2013 and 2014.

It will then move on to plans for a body to tackle lenders in difficulty, with the goal of having banks - and not taxpayers - clean up problems that arise in the financial sector.

"The second stage is a proposal in 2013 for a European resolution agency," he said, adding this would have broad legal powers and work closely with national authorities.

"If we have unified supervision then we need at the end a European authority for resolution that has to have certain legal responsibility because resolution is a different matter than supervision," he said.

The European Central Bank is set to get ultimate responsibility for supervising the more than 6,000 banks in the euro zone, although national supervisors are likely to retain most day-to-day oversight duties.

Some central bankers worry that if the ECB gets too much responsibility for supervising banks, this may prove unmanageable and backfire later, hurting its image if it fails to spot problems and take action.

One solution to this would be to separate the resolution authority, responsible for winding up troubled banks, from the supervisor. Locating the agency away from the central bank would also allow for what one official described as an "arms length" relationship between the agency and the ECB.

German Chancellor Angela Merkel last week cited the need for effective bank supervision and a resolution fund as preconditions for any direct aid to struggling banks via the euro zone's 500 billion euro ($652 billion) European Stability Mechanism bailout fund.

($1 = 0.7674 euros)

(Reporting by Michael Shields; Editing by Hugh Lawson)

• A Permanent Economic Emergency