The European Commission will aim to nip future government bank bailouts in the bud by introducing a system of centralised banking regulations, it announced on Wednesday.
Under the proposals, institutions would be allowed to fail where the failure posed no systemic risk to the national or international economy.
Where failure would pose a threat to financial markets they would be propped up in part by having bondholders and shareholders take losses rather than the taxpayer bailing them out.
"We don't want taxpayers to have to pay," said EU internal market commissioner Michel Barnier as he outlined the proposals in Brussels.
"We're going to break the link between banking crises and public budgets."
The complex proposal is not scheduled to take effect fully until 2018.
And it still needs the approval of the European Council, composed of the leaders of the 27 EU countries, and the European Parliament, and may be significantly altered in the process of gaining approval.
While Mr Barnier said the centralised rules are necessary because so many banks operate across borders, he did not propose setting up a powerful central banking authority.
"If we're going to avoid in the future banking crises, each member state has to be equipped with the appropriate tools to take action in time, not when it's too late," he said.
All national banking authorities would operate with the same rules enabling governments to intervene early, require banks to draw up recovery plans, and even to dismiss the bank's management.
If a bank was about to fail, national authorities would have the power to sell or merge the businesses, to create a temporary "bridge bank" to carry out essential functions, to separate good assets from bad ones, and to write down the bank's debts.
Moody's ratings agency lowered the credit ratings of Germany's second-largest bank and eight other financial groups in Germany and Austria today.
Commerzbank will see its creditworthiness cut by one notch from A2 to A3.
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