The European Union has agreed to create a bank supervisor to oversee lenders across the eurozone, following marathon talks which ended hours before the year's final EU summit.
The summit later on Thursday will aim to end the third gruelling year of the debt crisis on a high note with a Christmas gift for Greece, by officially releasing the next tranche of international aid.
Under the scheme approved by EU finance ministers overnight, a new single supervisor for eurozone banks will allow banks to be recapitalised directly without adding to government debt loads.
The European Central Bank (ECB) is to manage the system in tandem with the EU-wide European Banking Authority and national supervisors.
The "overall aim is to restore confidence in the banking sector", said the meeting's chair, Cypriot Finance Minister Vassos Shiarly, as he announced the deal to the press in the early morning hours, comparing the deal to a "Christmas present for the whole of Europe".
From March 2014, banks with assets worth more than 30 billion euros ($A37.45 billion) will be covered directly, although the ECB will be able to call up other smaller lenders over which it has liquidity fears.
EU financial markets commissioner Michel Barnier said the new supervision deal was a "first stage" that would over the course of 2013 be followed up by legislative proposals for a fund to wind up banks that can't be fixed and also a cross-border deposit guarantee.
The "historic" agreement came after 14 hours of talks and less than 12 hours ahead of the two-day summit of EU leaders who ordered the marathon preparations.
Britain, which will not be joining the new system, wanted special voting rights that would protect the City of London global financial centre, and Chancellor of the Exchequer George Osborne said it was "a good outcome for the entire European Union", but that "the countries that weren't going to join the banking union, like Britain, were protected".
The so-called Single Supervisory Mechanism (SSM) will ultimately allow eurozone rescue funds to directly recapitalise struggling banks such as those which failed in Greece and Spain, where a burst property bubble left a string of bad debts.
Barnier told a press conference that the ECB, which lies at the centre of the new arrangements, would directly supervise some 200 of the biggest of the estimated 6000 eurozone lenders under the scheme.
Fresh from the European Union's much-discussed Nobel Peace Prize, the summit later in the day is set to turn back on the tap and begin delivering some 40 billion euros in loans to Greece.
The release of the funds, after months of delay, comes in return for harsh economic austerity programs that have generated a flood of protests - and chilling talk of Greece's exit from the eurozone.
But economic reform efforts across Europe, while whipping up social unrest, have eased market pressure on the euro single currency. And the biggest impact was a vow by the ECB to offer almost unlimited guarantees to prevent bigger countries falling into similar trouble.
The crisis has seen debt bounce around between government and bank books, and the foundation stone for a banking union delivers a fresh step towards closer cross-border integration in future.
"We will come out of this together, and stronger," said EU Council President and summit chair Herman Van Rompuy of the combined moves to beat the economic doom and gloom at this week's Nobel awards ceremony in non-EU star economy Norway.