European Central Bank vice-president Mr Christian Noyer yesterday told the European Parliament the euro zone did not need a group to co-ordinate banking supervision but should enhance and develop the ECB's existing Banking Supervisory Committee watchdog.

Banking supervision has been a thorny issue since the launch of the euro in 1999, which gives the ECB the job of running monetary policy without direct oversight of banks in its domain.

The European Union needs a shake-up in the way it supervises banks because it will soon have to implement new regulatory bank capital rules from the Basel Committee on Banking Supervision.

"The treaty requires the ECB to organise and facilitate the surveillance of banks and the maintenance of financial stability," Mr Noyer told the Committee on Economic and Monetary Affairs. "So we have to do something anyway and why not use this framework? (the banking supervisory committee)," he added.

At a meeting of EU finance ministers earlier this month, Germany and Britain proposed a plan to reshape the way the EU watches banks. It was proposed the EU form two new committees to implement new banking laws and a group to co-ordinate on financial stability comprising "finance ministries, financial sector supervisors, the ECB and other monetary authorities".

Sources have said the proposal elicited ECB fears it would be left powerless in banking supervision and therefore it has come up with its own proposal.