Establishing a banking union in the eurozone area has taken a significant step forward, with final agreement reached on what is called the Single Supervisory Mechanism.

The deal between the European Parliament, Council and Commission was signed off this afternoon.

Under the plans, the European Central Bank will have direct oversight of eurozone banks.

The Single Supervisory Mechanism is designed for those countries within the eurozone, but is also open to other EU countries.

Negotiations had stalled on the parliament's desire to have a greater role in the appointment of the chair and vice chair of the supervisory board.

The Irish Presidency, negotiating on behalf of member states, had also been arguing that a delicate balance achieved at an EU leaders' summit last December had to be maintained.

This related to the rights of member states participating in the SSM and those countries that chose to stay outside.

Securing agreement on the SSM was one of the key priorities of Ireland's Presidency of the European Council, which runs until the end of June.

Minister for Finance Michael Noonan, who played a key role in the talks, has welcomed the deal.

He said: "The single supervisor is the core element of banking union and a vital step in breaking the vicious link between the banks and the sovereigns."

The deal envisages that banks with assets of €30bn, or larger than one-fifth of their country's economic output, are supervised by the ECB rather than national supervisors.

The next pillar of a banking union should be the creation of a central system and fund to close troubled banks, rather than leaving it to individual countries, such as Cyprus or Ireland, to have to manage alone.

But the reluctance of Germany and other economically strong countries to underpin such a fund means it will be difficult to set up.