Under the proposal, the EU Commission would act to rescue or wind down a bank after hearing advice from a board consisting of the European Central bank, its own officials and national authorities.
Setting up a region-wide system to deal with troubled banks is a key part of a plan to restore confidence in the financial system. But some see the Commission's proposal as another move by Brussels to erode member countries' national sovereignty — and it immediately ran into opposition from Germany.
The proposal "gives the Commission powers that we believe it cannot have according to the current treaties," said Chancellor Angela Merkel's spokesman, Steffen Seibert. "The proposal on the table will, from our point of view, unfortunately slow down rather than speed up the road to the banking union."
Having to go through treaty changes at this stage would be fraught with danger for the EU — not only would it be time-consuming, but the proposals could easily be rejected at a time when popular opinion of the EU is low.
Seibert argued it would be much quicker to implement a German-French proposal, made in May, to move ahead with a more limited form of a banking resolution authority that can be adopted without changing the EU treaties. The authority could be given greater powers later, once limited treaty changes had been secured.
Lithuanian President Dalia Grybauskaite, who holds the EU's rotating presidency, acknowledged it would be a "challenge" for the EU nations to find common ground on the issue.
The Commission said it had proposed taking the lead role because of legal constraints on other institutions.
In a statement, it said "the Commission has the necessary experience on bank restructuring" and added that it was "the best placed among EU institutions to ensure that final decisions fully respect the principles underpinning the functioning of the EU."
The Commission insisted national authorities and the ECB would still have a key role in directing the Commission's actions.
The central authority to solve banking crises is one of three pillars in a broader 'banking union' that the EU is trying to create. The other two are centralized banking oversight — to be adopted by the ECB — and a jointly guaranteed deposit insurance, which has yet to be agreed on.
Creating a banking union has become important because the cost of savings banks can overwhelm individual governments' finances — as happened in Ireland and Cyprus, which both needed government bailouts.
The common rules for a centralized approach would replace the current national strategies, where local banking regulators have often proved not to be forceful enough in dealing with their home banks.
They also include guidelines on having a troubled bank's creditors — the shareholders, bondholders and uninsured depositors — takes losses before taxpayer money is used in a rescue operation.
The EU Commission's president, Jose Manuel Barroso, said that with the new proposal "it should be banks themselves, and not European taxpayers, who should shoulder the burden of losses in the future."
Geir Moulson contributed to this article from Berlin.