Britain could be ordered to bail out a bank or other financial institution by a vote from other EU nations under a pan-European system of supervision unveiled in Brussels today.

A new European Systemic Risk Board will act as a watchdog for signs of failure in the financial sector while three EU supervisory bodies will monitor banks, insurers and securities companies, with the power to settle disputes between national regulators.

The package is a key part of the EU’s response to the financial crisis and has been subject to a fierce debate over the powers of the new bodies. Details will be hammered out by the European Parliament and the 27 EU states over the next three months.

Under the European Commission’s proposals, if an EU country believes that any ruling by the new bodies impinged upon its fiscal responsibilities, it would have the right of appeal to the 27 member states in the European Council, who would vote on a final decision.

Lord Myners, the City Minister, said that Britain would study the proposals to make sure that they kept to a deal struck at EU leaders’ summit in June, when Gordon Brown insisted that only national regulators should be able to take decisions with fiscal implications.

Privately British officials said that they were content with the plan to allow member states to act as the last court of appeal, under qualified-majority voting, and wanted to extend the range of decisions which could be subject to such an appeal.

Most EU nations are keen for the new supervisory bodies to have real teeth but Britain has been especially wary of handing over any fiscal powers to the EU. Even so, Charlie McCreevy, the EU’s Internal Market Commissioner, insisted that the aim was to give the bodies new powers and that a member state could ultimately be outvoted and forced to act to bail out companies deemed to be a systemic risk.

“This is an area fraught with a lot of difficulty and it did involve a lot of time and intellectual application to try and deal with this,” said Mr McCreevy, whose department drew up plans for the European System of Financial Supervisors, which will have binding powers to resolve disputes between national supervisors.

“On the one hand there would be little good in having an authority if in areas of dispute there was no binding recommendation. If there was not it would be no different than the present situation. On the other hand, some member states raised this question of how it might impinge on the fiscal responsibility of the member state. I anticipate that there will be further heavy discussions about this in the Council of Ministers and probably the European Parliament. So this is our effort at trying to deal with this vexed question.”

The new risk board will flag up warnings that have been ignored to all EU governments, which will increase “the moral pressure on the recipient to act or explain.” Warnings will not always be made public if they are deemed too sensitive.

Jean-Claude Trichet, the president of the European Central Bank, is favourite to run the ESRB, while Mervyn King, the Governor of the Bank of England, has been tipped as vice-chairman. The top two posts will be voted on by the members of the board, which will comprise central bank governors from all 27 EU nations.

Lord Myners said: “The UK is playing a vital leadership role in the reform of global banking regulation. We will continue to push for real reform at the domestic, European, and international levels including at the G20 summit in Pittsburgh.

“We have called for legislative proposals to establish the European System of Financial Supervisors and European Systemic Risk Board. We will study the proposals carefully.

“Our goal in negotiations in the months ahead will be to ensure that the final proposals align with the Council's instructions in June.”

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