EU legislation already protects all bank deposits up to €100,000 through national schemes. However, these "can be vulnerable to large local shocks", the Commission said.
"The Banking Union was established to underpin confidence in participating banks," the Commission said. The proposed European Deposit Insurance Scheme (EDIS) would strengthen that union, protect bank depositors, reinforce financial stability and "further reduce the link between banks and their sovereigns", it said.
The proposed scheme would be put in place in three stages, from re-insuring national deposit guarantee schemes to a co-insurance model with progressive increases in funding to EDIS, to a full European scheme by 2024.
Strong safeguards would be put in place against 'moral hazard' and 'inappropriate use', to encourage national schemes to manage their own risks well. A national scheme would only be able to access EDIS if it fully complies with "relevant EU law", the Commission said.
The European Banking Federation said that the "process and pace for the introduction of this scheme is surprising", and that the proposal requires "careful consideration".
"The EBF wants to ensure that the European deposit insurance scheme will not lead to increases in overall contributions that banks make to deposit guarantee systems. The EBF also believes that the scheme should be clearly integrated in the Banking Union framework such that the scope of banks mirrors closely the scope of the single supervisory and resolution mechanisms," it said.
"Some individual governments still need time to get their own national schemes up and running first," the EBF said.
A German government official told the Financial Times that the scheme sets the "wrong priorities and guidelines" and would spread risk around the Eurozone rather than reduce it.