European leaders have agreed to create a single supervisor for banks in the countries that use the euro that will be up and running sometime next year.
EU Council President Herman Van Rompuy made the announcement early on October 18 as 27 EU leaders met in Brussels.
"The urgent element now is setting up a single supervisory mechanism to prevent banking risks and cross-border contagion from emerging, and that's why the European Council called tonight for swift progress, with the objective of agreeing on the legislative framework by January 1, 2013," Van Rompuy told reporters.
"Once this is agreed, the single supervisory mechanism could probably be effectively be operational in the course of 2013."
French President Francois Hollande said the EU had reached a "turning point" in the crisis, and that putting a mechanism in place to avoid a banking crisis was the next step to bringing back stability in the region.
"We need to solve the problems of the eurozone and get back confidence, and confidence will create growth," Hollande said.
"This evening, with the banking union, we managed to get back stability and efficient mechanisms necessary for tomorrow to avoid a banking crisis."
German Chancellor Angela Merkel said bank recapitalization could only take place once the bank supervisor was fully effective, something she said would take a couple of months.
"I would like to repeat, it is very ambitious to have the finance ministers establish the legal framework quickly. We shouldn't disappoint markets by changing short-term announcements again and again," Merkel explained.
"The important message is that there will be banking supervision living up to its name. It has to work before we can talk about recapitalizing banks."
The summit agenda did not include Spain, which some expect will need a market intervention to keep borrowing costs in check, while little more than a passing reference to developments in Greece was expected.
In Greece, meanwhile, police have clashed with protesters hurling stones and Molotov cocktails during a general strike that brought much of the near-bankrupt country to a standstill.
With reporting by AP, Reuters, dpa, and AFP