The proposal gives the European Central Bank authority to issue and revoke banking licenses, while ensuring banks fulfill capital, leverage and liquidity requirements. The ECB would also be able to carry out early intervention measures when a bank breaches those requirements.
The proposal will also involve the establishment of a fund to close troubled banks; and a fully fledged scheme to protect citizens' deposits across the euro zone.
For the plan to work, it will require countries to surrender a degree of sovereignty over supervising their banks. The creation of a single supervisory mechanism within the ECB to police the more than 6,000 euro zone banks will replace the current system of national banking supervisors.
The commission asked legislators to adopt the proposal by year-end. "We want to break the vicious link between sovereigns and their banks," Barroso said.
Mr. Barroso also said all politicians in Europe must respect the ECB's independence. The ECB has a "duty" to ensure a single, integrated monetary policy, European Commission President said. It "cannot and will not finance governments," he said.