LUXEMBOURG (Reuters)—European Union finance ministers backed a reform of the E.U.'s financial supervision on Tuesday but left some key powers of the new supervisory bodies and the European Central Bank's exact role for E.U. leaders to decide next week.

The E.U.'s executive European Commission has proposed setting up two new supervisory bodies to make markets safer for investors by applying lessons learned from the credit crunch.

The first body, dubbed the European Systemic Risk Board (ESRB), would monitor any build-up of risks in the financial system that would threaten its stability.

The Commission has proposed that the European Central Bank chair this council, but Britain has historically opposed that, fearing it would give the ECB too much power over the City of London—Europe's top financial center and a major source of taxes for Britain.

The ministers agreed that ESRB would be chaired by either the ECB president or one of the 27 E.U. central bank governors, a Czech E.U. presidency source said.

It would be up to the ESRB board, made up mostly of the bankers, to choose the chairman, the source said.

But Economic and Monetary Affairs Commissioner Joaquin Almunia told a news conference after the ministers' meeting that he was confident the Commission's proposal would prevail.

"I am fully convinced that the E.U. Council will support the Commission proposal (for the European Central Bank to chair the ESRB for macro prudential supervision)," he said.

The Commission also proposed that a second pan-E.U. body would thrash out standards for to day-to-day supervision of banks, insurers and securities markets and, in case of disputes between national supervisors, would have the final say.

This body would be called the European Supervisory Authorities (ESAs) and according to the Commission and most E.U. countries should also have the power to make, in a crisis, emergency decisions, like banning short-selling.

Fiscal sovereignty concerns

But Britain, Slovakia, Slovenia and Romania disagreed with others, fearing that such powers of the ESAs could impinge on the sovereignty of national fiscal policy, which is the sole domain of national parliaments, the Czech presidency source said.

"(They) do not agree with this approach, since they believe that it could impinge on member states' fiscal responsibilities," said a document summing up the state of negotiations.

E.U. ministers therefore left it to E.U. leaders, who meet on June 18-19, to decide on the controversial issues.

"The thing that concerned us, which we could not live with, was a proposal whereby there might be an agreement reached by regulators at a European level that would have had domestic fiscal consequences for governments," Britain's Chancellor of the Exchequer Alistair Darling told reporters.

"In other words, they might have been able to say to a government 'you've got to do something about a bank', therefore that government would have had to ask its taxpayers to contribute," he said.

"There is a principle here—that taxation is clearly a matter for member states. It is not a European Union matter."

The ministers agreed day-to-day supervision of financial firms would remain with national supervisors as proposed by the Commission.

E.U. finance ministers said the aim was to have the new supervision system fully in place in the course of 2010 after the Commission presents the necessary legislative proposals by early autumn 2009 at the latest.