The European Commission is to outline its plans for a banking union on September 11th.

The new entity will supervise the banking industry across the bloc and will have a key role in winding up failed lenders to prevent them destabilising the financial system.

It is designed to work alongside the permanent rescue fund of the European Stability Mechanism (ESM).

It will be able to directly aid banks in difficulty.

Spain is expected to be the first beneficiary of the new system after agreement was reached at EU-level to provide up to €100 billion to its stricken banks.

Leaders decided to establish a supervisor at a Brussels summit in June as part of measures to contain the Eurozone crisis that has seen Ireland, Greece, Portugal, Cyprus and Spain seek bailouts.

“We need to decide what kind of structure the new body could be set up under” the official is quoted in The Wall Street Journal as saying.

“It cannot conflict with the European Central Bank’s mandate” he added.

The official said that under the plan the European Banking Authority will lose control over the Eurozone nations that would come under the remit of the new organisation.

It is believed the new body would be an agency of the European Central Bank (ECB).