European Union leaders confirmed on Friday they want agreement by the end of the year on a way to resolve failed banks at European rather than a national level, signaling work would go on despite elections in Germany in September.

EU finance ministers agreed on Thursday on an intermediate step towards what is known as banking union, which involves tighter oversight of Europe's banks and coordinated resolution of any problems. Thursday's agreement means investors and wealthy savers will share the costs of future bank failures.

That moves the EU closer to drawing a line under years of taxpayer-funded bailouts that have caused public outrage.

But the law only sets out common rules that national authorities in the 27-nation bloc have to follow when dealing with their own banks. It does not allow for sharing power or financial costs of closing down or rescuing banks at EU level.

It is only a stepping stone to a broader deal which would create a central EU body to deal with failing banks, including big financial institutions that operate across national borders.

The European Commission, the EU's executive arm, is to propose how to create such a central resolution body, called the Single Resolution Mechanism (SRM), in July, although some officials indicate that it could be delayed beyond that date.

There will be little progress on the SRM until after the September parliamentary elections in Germany, which wants to avoid discussions that could involve some form of financial support for institutions in other countries.

Taxpayers across much of Europe have had to pay for a series of deeply unpopular bank and government rescues since the financial crisis erupted in Greece in 2010 and spread across the bloc and even threatened the survival of the euro.

The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, using taxpayer cash but struggling to contain the crisis and - in the case of Ireland - almost bankrupting the country.

The SRM is to complement the work of the European Central Bank in the role of a single supervisor of all euro zone banks.

"The European Council... underlined the following points: a fully effective SSM (single supervisor) requires a Single Resolution Mechanism (SRM) for banks covered by the SSM, with strong resolution powers, allowing quick, effective and coherent decision-making at central level," the leaders said, using the careful legal language employed in summit declarations.

"The European Council looks forward to the Commission's proposal establishing an SRM with a view to reaching agreement in the Council by the end of the year so that it can be adopted before the end of the current parliamentary term," they said.

The European Parliament has its last plenary session in mid April 2014.

The SRM is to have access to funds that it may need to help finance the restructuring or closure of banks, if losses imposed on shareholders and bondholders or even large depositors are not enough to cover the needs.

The central fund is to be built from fees paid in annually by banks, just like the national resolution funds created under the intermediate law, but until enough money accrues over the next 10 years, it may need to resort to the euro zone bailout fund for help.

The leaders remained vague on how the fund would work.

"It should include appropriate funding arrangements, based on contributions by the financial sector itself, and an appropriate and effective backstop which should be fiscally neutral over the medium term," they said.

(Reporting By Jan Strupczewski; Editing by Luke Baker and Peter Graff)