By Simon Miller

The European Central Bank (ECB) should begin the process of overseeing eurozone banks from 1 January 2003 as the first step towards banking union according to leaked documents.

A European Union draft document added that new supervisory role would have a year-long phase-in period.

In the document, sees by Italian newspaper Il Sole 24 Ore, the EU said: "As a first step towards the banking union, a single supervisory mechanism should ensure that the union's policy relating to the prudential supervision of credit institutions is implemented in a coherent and effective war, that the single rulebook for financial services is applied equally to credit institutions in all member States concerned and that those credit institutions are subject to supervision of the highest quality, unfettered by other, non-prudential considerations."

It added: "The ECB should be conferred those specific supervisory tasks which are crucial to ensure a coherent and effective implementation of the union's policy relating to the prudential supervision of credit institutions, while other tasks should remain with national authorities".

"Safety and soundness of large banks is essential to ensure the stability of the financial system. However, recent experience shows that smaller banks can also pose a threat to financial stability, the draft said.

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