Central Bank Deputy Governor Sharon Donnery has lost out in the race to become the next chair of the ECB's banking supervision arm.

The ECB has confirmed that Italian-born banking regulator Andrea Enria has been chosen in a vote of Governing Council members.

He will take over from Daniele Nouy as the head of the Single Supervisory Mechanism.

The SSM oversees the euro zone's 118 top lenders, a €21 trillion industry still reeling from the last recession and facing new challenges from hackers to fintech.

The appointment must be ratified by the European Parliament and euro zone governments.

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The outcome of the ballot could be interpreted as a boost to the odds of Central Bank Governor Philip Lane securing the role of chief economist at the ECB next year.

Peter Praet is retiring from the role in May of next year.

The Finance Minister Paschal Donohoe withdrew Professor Lane's candidacy for the vice-presidency of the ECB earlier this year as Spain's former economy minister was known to be the favourite for the job.

The ECB's Governing Council selected Enria in a secret ballot, and his appointment must now be approved by the full European Parliament and relevant ministers. 

Enria, who has chaired the London-based European Banking Authority since 2011, has played a major role in shaping the European Union's new financial rulebook in the aftermath of the crisis. 

A former supervisor at the Bank of Italy and the ECB, he is viewed as politically neutral and ruffled some feathers at home for what was seen as an overly tough stance on unpaid bank loans and credit to small companies.

Heading one of the EU's newest institutions, Enria will be charged with reforming an industry whose fragmented structure and regulatory framework, low profits and piles of non-performing loans have left it struggling to compete globally. 

Sources told Reuters earlier that Enria's candidacy would be backed by the central banks of Italy and other southern European countries, while northern Europeans were expected to split their vote as both he and Sharon Donnery candidates were seen as qualified for the job. 

Southern Europeans were alienated by Sharon Donnery's harsh approach as the main architect of the ECB's drive to clean up banks' balance sheets from bad loans, which are mainly concentrated in Cyprus, Greece, Portugal and Italy. 

The initiative, though still approved, was eventually watered down due to opposition from Italy. 

Enria, while not enjoying Italian political support, was still seen as the candidate with a more constructive approach to Italian banks, some of the weakest lenders in Europe. 

Both candidates had been approved by the European Parliament's Committee on Economic and Monetary Affairs after informal hearings, but the representative of Italy's eurosceptic League party did not back Enria. 

The choice is also likely to intensify criticism about the selection of women at the ECB, where all but two members of the 25-strong Governing Council are men. 

It also means that both arms of the bank will be led Italians for the next year, until the term of ECB President Mario Draghi expires next October.