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European Union finance ministers were locked in difficult talks early Saturday, trying to resolve deep differences over how to manage closures of failing banks so as to prevent wider damage to the economy.
As the talks dragged on after an early start Friday, hopes faded of an overall deal to finally put the banking sector's problems to rest.
On Thursday, the 17 eurozone finance ministers had agreed how the single currency's rescue fund, the European Stability Mechanism, could help the banks without adding to the already big debt burdens of member states.
The next step was to decide how to close banks when that would be the best solution, with the two facets combined in the Banking Recovery and Resolution Directive (BRRD) under discussion.
"We have a fair chance of concluding the work, it is very important in maintaining momentum on the banking union," EU Economic Affairs Commissioner Olli Rehn said as he went into the talks Friday morning.
But sharp differences emerged over how much the home country and creditors would have to contribute to the winding up of a problem bank and the degree of flexibility allowed.
Diplomatic sources said some countries such as Germany, Europe's paymaster, favoured a tight regime, 'bailing-in' the bank's creditors so that they and not the taxpayer would bear most of the costs.
Additionally, this would provide greater regulatory certainty.
Other member states such as France wanted more leeway so that some classes of creditors could be excluded if by including them, they were weakened and so set up a potential knock-on effort through the economy.
Initially, the "talks introduced more flexibility but as they went on, that went too far for some," said one source.
"We have made significant progress in narrowing the ground (but) ... there are still some significant divergences of opinion," Irish Finance Minister Michael Noonan said early Friday.
"Flexibility is the biggest issue, national flexibility," Noonan said.
France also "wants some flexibility but is ready to agree to certain limits," French Finance Minister Pierre Moscovici said on his arrival Friday.
Ministers had welcomed Thursday's eurozone ESM deal as a major step towards "banking union," the new overall EU regulatory framework meant to contain any bank collapse, and offering hope Friday's talks would agree the BRRD.
Up to now, the taxpayer has paid for most of the state and bank bailouts but this has stoked growing popular disquiet and only added to debt levels.
To address this problem, the EU, the European Central Bank and the International Monetary Fund in March agreed a Cyprus rescue which 'bailed-in' larger depositors in its two biggest banks to pay for their restructuring.
That move shocked savers who had felt they were safe in light of the EU's supposedly blanket guarantee of deposits up to 100,000 euros.
The EU initially set up the 500-billion-euro ($665-billion) ESM to bail out member states. But last June, when Spain's banks looked near to collapse, Brussels extended its scope to allow direct aid for struggling lenders.
The ESM bank recapitalisation role is tied to the Single Supervisory Mechanism (SSM) agreed last year which centralises regulatory oversight of the eurozone's largest lenders under the ECB.
The SSM is meant ultimately to be backed up by a Single Resolution Mechanism for the eurozone and those non-euro countries wanting to work with it, and then a European deposit guarantee system to reassure nervous investors that their money is safe.