Five years ago this month the first rumblings of the international financial crisis were felt. The seismic movement that followed is almost certain to be the defining event of the first quarter of the 21st Century.

The outcome of last week’s euro zone summit is just one of the many profound consequences of all that has happened in finance. Among other things, the leaders agreed in principle to take a giant step towards a banking union.

Supervision of banks is to be effectively federalised, with the European Central Bank taking responsibility for regulating a financial system to which it acts as lender of last resort. The decision is the logical accompaniment to the even more momentous decision of the euro member states to agree in principle that the costs of rescuing banks in one country be paid for – in part at least – by taxpayers in other countries.

It will amount to a huge change if it comes to pass. There are reasons to welcome the change and issues of potential concern. The most obvious benefit is that it shows a new-found willingness to address the structural weaknesses of the euro edifice. Monetary union without banking union has not worked and will not work.

Few believe otherwise now.

Another benefit is the potential for better regulation of a financial system that has failed. Nationally, at European level and internationally, regulatory change has already been huge. But these changes almost certainly do not go far enough to protect the real economy from the massive risks that appear to be inherent in globalised finance.

One, of many, problems to be addressed is how to prevent financial market participants from capturing those who regulate them. In all countries, financial institutions exert enormous influence over policy decisions which affect them. It is to be hoped that federalising supervision will help weaken the influence finance has over how it is regulated.

From an Irish perspective, it is difficult to see a downside to ceding regulatory authority over domestically-focused banks. Cosiness and a tendency towards group-think are strong. These are not qualities that make for good regulation of a powerful interest group.

The effects of a Frankfurt-based regulatory regime may be more ambiguous for Dublin’s International Financial Services Centre. Some in Europe have long looked askance at what goes on there. When supervisory control moves to the ECB, it is possible that some institutions will face tougher regulation.

The IFSC generates the obviously welcome rewards of jobs, exports and tax revenues. But it also exposes the State to very considerable risk, as the failure of Depfa bank almost demonstrated in a very costly manner.

Under the new regime, banking risks will be Europeanised. If the price for that is a smaller IFSC, then it would appear to be one worth paying.

Another issue for the IFSC is how the new regime affects its relative attractiveness. Britain will remain outside the new regulatory regime and may well end up outside the wider EU regulatory framework, as the probability of it leaving the bloc rises almost by the week.

Given the City of London’s power there would undoubtedly be pressure to limit the costs of being outside the wider EU market by, among other things, making the regulatory regime more attractive for financial institutions. That could negatively affect the IFSC.

Not mentioned in Brussels last week was euro zone-wide deposit insurance and powers to shut down failing banks when depositors’ cash is at risk. But these will almost certainly come on the agenda soon.

Who will administer the pooled revenues paid by banks to fund the scheme and how will decisions to close banks be taken? In the US, the Federal Deposit Insurance Corporation does this job. But because the European banking system is much bigger and more concentrated than in the US, the “too big to fail” problem is much greater.

Ireland illustrates the point. AIB and Bank of Ireland are small relative to the wider euro zone but have an indispensable role in the Irish payments system and credit provision. They will always be too big too fail.

Finally, there is the issue of who regulates the regulator. No central bank in the democratic world is as unaccountable to its parliament as the ECB. Giving it even more power makes it even more urgent that it be subject to greater checks and balances.