European Union policymakers want large cross-border banks to comply with EU rules on how to wind down their operations.
The move represents the EU's latest attempt to isolate the kind of contagion caused by failing banks during the 2008 financial crisis.
Dedicated EU "resolution colleges" of supervisors and special advisers will form part of the policy, which is part of a wider G20 plan to tackle banks that are "too big to fail".
The G20's finance ministers and central bank governors meeting in Gyeongju, Korea, this week will discuss a similar global proposal for "bank bail-ins" whereby bondholders would have to live with a quick and less valuable conversion of their debt into equity in order to stabilise a bank's capital base.
Regulators and analysts have already cast doubts on such plans and more widely on the EU's involvement in bank failures.
Industry sources underline that regulators will have a hard time pinpointing which banks are in trouble in the first instance.
"The definition of insolvency is invariably a testing concept in practice because there is simply no 100% robust means of assessing a priori whether an institution is insolvent or whether there is a liquidity issue exclusively," says one industry insider.
The draft proposal, seen by EurActiv, seeks to identify triggers for regulators to intervene in troubled lenders earlier than their national supervisors may have done in the past.
These triggers will likely require upcoming EU rules on capital requirements to be tweaked, according to another industry source.
Converting debt to equity also crops up in the EU paper but it is unclear whether conversions should be mandatory or at the administrator's discretion.
Having the same answer to remedy insolvent banks in the bloc is impossible and dodges the most important question coming out of the financial crisis: what to do with banks that are too big to fail, argues Karel Lanoo from Brussels-based think-tank CEPS (Centre for European Policy Studies).
"We do not need harmonisation, we need supervisors to step in earlier," Lanoo argues.
"We need smaller-sized banks and banks should be allowed to fail," he continues.
