Bank winding up system priority for this year: Barroso

(BRUSSELS) - Progress on a system to wind-up failing banks before they can wreck the wider economy is of critical importance this year, the European Commission said on Tuesday.

Commission head Jose Manuel Barroso said that on the back of plans for a single bank regulator for the eurozone, he "will make a formal legislative proposal for a single resolution mechanism in the banking sector before the summer."

He said: "I consider this a matter of utmost political priority.

"This proposal will be by no means less important than the (single regulator), and neither will it be less complex to frame in legal, technical and political terms."

At a summit last month, EU leaders approved setting up the Single Supervisory Mechanism, a regulator working alongside the European Stability Mechanism to police and bail out any troubled lender before they do too much damage.

The SSM is the first step towards a banking union based on central oversight of all eurozone banks. It is supposed to be complemented in due course by a system to ensure the orderly winding up of those lenders which fail, and then by a deposit guarantee mechanism to protect depositors.

The December summit agreed that once the SSM was operational, the ESM would be able to directly recapitalise weak banks, with March 2014 the target date.

While EU leaders agreed to the SSM, there were strong doubts in countries such as Britain outside the eurozone who are suspicious of any increased powers for Brussels over their financial systems.

Additionally, there are concerns the momentum for change might slow this year, especially as the worst of the debt crisis appears to have passed, easing the pressure for change.

Barroso himself told MEPs the eurozone had survived the crisis, proving the nae-sayers wrong.

"We have turned a page in the crisis. No more, no less and we are now ready to write the next chapter of the recovery," he told MEPs.