The conservatives led by Angela Merkel and the Social Democratic Party have formalized an agreement defining a European banking union where a body attached to the European finance ministers would be deciding on the closure of failing banks. Under the current rules, that power is in the hands of the European Commission.

There were also discussions as to the funding for the European Stability Mechanism and these funds would not be made available for the winding down of financial institutions. According to sources, a number of legal questions still need to be resolved. The immediate goal though is to sign off on an agreement by early next week in order for German Finance Minister Wolfgang Schaeuble to elucidate the German position when he meets with EU counterparts.

The EU seeks an agreement on a bank resolution by year's end but there is still uncertainty clouding Berlin's position on the matter after there was a need to enter into complex negotiation discussions and the length of time needed to formalize any agreement on the matter.

According to SPD spokesperson Benjamin Seifert, "The talks on this issue are going full steam ahead. Both parties are still far from an agreement on the questions of procedure and content."

The central project is to have the so-called Single Resolution Mechanism in place. This is a set of rules to avoid the 'doom loop' cycle of failing banks and sovereign governments. This was the major issue during the debt crisis in the Euro Zone. 

For its part, the European commissioner assigned for banking union reform, Michael Barner, through a spokesperson said the European Commision is open to the idea for the creation of an agency managing rhe closure of failed banks would not be linked to the Commission.

The process would be the creation of a common resolution fund to be financed by banks after sufficient liquidity has been reached.