Britain will not subject its banks to the EU-wide supervisor being proposed by European Commission President Jose Manuel Barroso as part of "banking union" for the 27-nation bloc, Downing Street said today.
Mr Barroso today suggested that all 27 EU members should sign up to banking union, though he indicated he was ready for the UK to be allowed to opt out from the proposals, designed to increase stability following the eurozone debt crisis.
Prime Minister David Cameron and Chancellor George Osborne have already made clear they believe banking union should be only for the 17 nations which use the single currency.
As well as cross-border regulation, the banking union proposals also envisage an EU-wide deposit guarantee scheme and a rescue fund paid for by levies on financial institutions.
Mr Barroso told the Financial Times the new arrangements could be in place by next year without changing existing EU treaties.
"There is now a much clearer awareness among European member states about the need to go further in terms of integration, especially in the euro area. This is one of the lessons of the crisis," said the European Commission chief.
"If Britain cannot, because they are not in the euro area, go for more integration, we should find a way where this is possible to accommodate these different concerns."
The Chancellor updated Cabinet this morning on the latest situation in the eurozone, which saw a 100 billion euro bailout for Spanish banks agreed at the weekend.
Asked about the banking union proposals, a Downing Street spokeswoman said: "As the Chancellor said at the weekend, that is for the eurozone.
"Mr Barroso sets out in his interview that it is of course the British right to decide if they want or not to join further steps of integration.
"Our view is pretty clear on that. That is a matter for the eurozone if they feel that that is the next step forward.
"As the Prime Minister and Chancellor have said, there is some remorseless logic about that, but that is a matter for them. Britain will not be involved."
Ministers at this morning's Cabinet meeting raised the possibility that any banking union within the eurozone could have implications for UK interests in the operation of the single market, said the spokeswoman.
She added: "The point was underlined that if there is progress made on that, then we need to ensure that British interests are secured and the single market is protected.
"Anything affecting the single market should be agreed by all 27, but as the Chancellor has been very clear, it is for the eurozone countries to decide what they do and that should be for the eurozone countries alone."
The Cabinet meeting was assured this morning that contingency arrangements are in place for any fallout from the re-run Greek elections on June 17, though Downing Street declined to go into any detail about what they might involve.