MEPs have voted in favour of an ambitious new supervisory framework for Europe's banks and financial services.
The new measures will see the creation of four new authorities established by January 1. These are designed to detect early signs of risk within the financial system, in order to avoid a repeat of the economic crisis which followed the collapse of Lehman Brothers.
More on the EU finance oversight architecture here
This was not an easy piece of legislation and it provoked considerable disagreement between member states and the European Parliament over how intrusive the new supervisory authorities should be.
But it was actually hammered together in relatively short time - just a year - given the sensitivity of the issue, particularly with Britain vowing to shelter the City of London from tighter regulation.
Today MEPs will agree a new European Systemic Risk Board, a new network of national financial supervisors, and a further trio of supervisory authorities for banking, securities and insurace with seats in London, Paris and Frankfurt.
It is the biggest cross-border financial regulation package ever, and its authors hope it will instill greater transparency into the system. The package will allow the bodies to take action against cross-border financial institutions which pose a systemic risk through toxic products, reckless lending or poor capitalisation.
The European Systemic Risk Board, or ESRB, will be headed by the ECB president Jean- Claude Trichet for five years. It will involve all the heads of Europe's central banks, including the Irish Governor, Professor Patrick Honohan.
They will have particular scrutiny over large cross-border European banks with subsidiaries in different members states, and will adjudicate on who picks up the tab if one gets into trouble.
The European Parliament has lobbied hard to give the various supervisory bodies decisive powers, but the UK successfully argued that no European body could intervene and force a government to use tax payers money to recapitalise a bank.
The Government here has welcomed the move, saying it complements the changes at national level which will see a new structure for financial regulation replacing the Central Bank and Financial Services Authority.
For Irish financial insitutions, the national regulator will remain the first line of supervision. The EU system deals more with international co-operation and large cross-border financial insitutions, although Ireland does have UK banks operating here.
When Fortis bank ran into trouble in the wake of the financial crisis, it dragged four regulators from France, the Netherlands, Belgium and Luxembourg into the mess with no clear rule book on who had to recapitalise the bank and whose depositors were protected.
The hope is that in future national regulators will have a clear rule book on where responsibility lies in the case of a cross border banking crisis. If they can not reach agreement then the ESRB can impose a binding decision.
The UK successfully argued that any such decision can not compel a government to use taxpayers money to recapitalise a bank.
The three European Supervisory Authorities (ESAs) will have the power to investigate specific types of financial institution, financial product, such as a 'toxic' product, or financial activity such as naked short selling, to assess what risks they pose to a financial market.
ESAs may also temporarily prohibit or restrict harmful financial activities or products, and may also ask the Commission to introduce rules to prohibit such activities or products permanently.
