European finance ministers have reached agreement on a eurozone banking union ahead of an EU summit in Brussels.The deal follows months of strained negotiations between member states and it will now be put before European leaders later on Thursday.

New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.The EU has already agreed that the European Central Bank (ECB) will act as the chief supervisor of eurozone banks.

"We have reached the main points to establish a European banking supervisor that should take on its work in 2014," said German Finance Minister Wolfgang Schaeuble, after 14 hours of talks ended shortly before dawn.Under the deal, banks with more than 30bn euros ($39bn) in assets will be placed under the oversight of the European Central Bank.

The deal gives the ECB powers to close down eurozone banks that don't follow rules. It also paves the way for eurozone rescue funds to come to the aid of struggling banks."Piece by piece, brick by brick, the banking union will be built on this first fundamental step today," said EU Commissioner Michel Barnier.EU leaders believe that the first stage of a banking union - a Single Supervisory Mechanism (SSM) - can be put into place without having to change EU treaties.

But there had been some legal doubts about the subsequent stages - a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks.The UK'son Wednesday it was "not convinced that an effective banking union can be created within the existing constraints of the European treaties".

London is the EU's main financial centre, and handles by far the biggest share of euro foreign exchange transactions. So the UK government is anxious to safeguard the City's powerful role and prevent its business leaching to a more integrated eurozone.

France and Germany appear to have found a compromise on the scope of the ECB's new supervisory powers. The sticking point has long been the threshold at which the ECB would intervene - Germany argues that many of its regional banks are too small to warrant ECB attention.