European policymakers on Thursday (20 March) agreed to complete a banking union, creating an agency to shut failing eurozone banks. However, there will be no joint government back-up to help cover the costs of closures.

After 16 hours of non-stop talks, the European Parliament and eurozone countries have agreed on the new scheme, completing the second leg of banking union that is due to start this year when the European Central Bank (ECB) takes over as watchdog.

The banking union, and the clean-up of banks' books that will accompany it, is intended to restore banks' confidence in one another and boost lending across the currency bloc. This should help foster growth in the 18 economies that use the euro.

It is also supposed to break the vicious circle of indebted states and the banks that buy their debt.

The details of the compromise, which must still get approved by the European Parliament and EU finance ministers, are outlined in a draft agreement and were confirmed by participants in the talks.

Under the deal reached, a 55 billion fund made up by levies on banks will be built up over eight years, rather than 10 as originally envisaged. 40% of the fund will be shared among countries from the start, and 70% after 3 years.

It also envisages giving the ECB the primary role in triggering the closure of a bank, limiting the scope for country ministers to challenge such a move.

The fund however, will not be able to rely on the eurozone bailout fund to borrow extra money if it runs out of funds with critics saying this meant that the banking union will never live up to its name.

"The key to the banking union is an authority with financial clout. They don't have it so we don't have a banking union," said Paul De Grauwe of the London School of Economics told the news agency Reuters.

"The whole idea was to cut the deadly embrace between bank and sovereign. But if a banking crisis were to erupt again, it would be back to how it was in 2008 with every country on its own."