[JURIST] The European Parliament [official website] approved legislation [press release, text] Thursday that creates a system of banking supervision overseen by a new centralized bank supervision authority supported by the European Central Bank (ECB) [official website]. The regulation puts in place a single supervisory mechanism that will cover [WP report] 150 of the largest banks in the 17 Eurozone nations, and allows other EU member states that do not utilize the euro to opt into the system. In a press release ECB President Mario Draghi stated:

Today marks a real step forward in setting up a banking union, which is a core element of a genuine economic and monetary union. We will do our utmost to put in place all organisational requirements, with the aim of assuming our supervisory responsibilities one year after the legislation enters into force, and look forward to working with national authorities to contribute to the restoration of confidence in the banking sector

The new regulation will enter into force following approval by the EU Council and will be operational by next year.

The ongoing European debt crisis has led to instability in the EU. Last November the European Court of Justice (ECJ) [official website] ruled [JURIST report] that the eurozone’s permanent bailout fund, the European Stability Mechanism (ESM) [official website; BBC backgrounder], is in line with European law. The ruling came following several member states’ own courts finding the ESM constitutional under their own laws, including Estonia and Germany [JURIST reports]. Last June the European Commission [official website] announced [JURIST report] a proposal [text, PDF] that would address the problems of bailing out large banks with public funds during financial crises in the future. The proposal rests on Article 114 of the Treaty on the Functioning of the EU (TFEU) [text, PDF] which “allows the adoption of measures for the approximation of national provisions which have as their object the establishment and functioning of the international market.”