“What a week,” tweeted European Union financial services chief Michel Barnier last Thursday after securing an agreement on how to wind up failed banks without making the region’s taxpayers foot the bill.

The deal, hammered out after months of characteristic wrangling, brings Europe a step closer to the banking union seen as vital to avoid another contagious financial crisis and offers some Christmas cheer to policymakers needing some victories to present to recession-weary electorates.

Yet, more than five years after the collapse of Lehman Brothers, the task of unifying and strengthening financial rules in the world’s biggest economic bloc and beyond is far from over.

Arguably the biggest hurdle is yet to come – a global agreement that offers a fast, failsafe way to wind down a major bank without the market mayhem that greeted Lehman’s demise.

The United States, which is spared the competing national interests that make EU-wide policymaking so tortuous, has moved a little more quickly than Europe on some banking and derivatives reform.

Under the Volcker Rule agreed this month, banks in the U.S. will have to split proprietary trading from their deposit taking arms, a bold assault on a lucrative line of business that critics say amounts to no more than gambling with customer savings.

Volcker is bound to face multiple legal challenges and implementation has been pushed back to July 2015.

The EU has yet to publish a draft law on structural changes at banks. Deutsche Bank fired a warning shot on Friday, saying it must remain a universal bank with both retail and investment arms in order to be competitive globally.

European policymakers insist they have already proven they can overcome internal disagreements and resist fierce lobbying by the financial industry to score several victories.

The bloc has reached deals on regulating the accounting sector, which gave banks a clean bill of health just before they had to be rescued in the financial crisis, and on strengthening protection of bank accounts.

“EU 2.0 is now on the launchpad as the integration from banking union is much greater than integration that has flowed from monetary union itself,” said Graham Bishop, an adviser to the European Commission, the bloc’s executive body.

But the list of what must still be done is daunting.

Reform of shadow banking, the less regulated $70 trillion sector comprising money market funds, repurchase agreements and other elements, is unfinished business globally.

“Banks, insurers and other financial services companies are having to deal with a fundamental overhaul of regulation and supervisory approaches, but the sobering fact is that the job is by no means done,” said David Strachan of Deloitte.

POLICY HIATUS LOOMS

While the United States approved in one go its vast Dodd-Frank reform of Wall Street which includes the Volcker Rule, the EU opted for a string of separate laws, not all of which have been agreed.

Away from the bustle of banking union talks this week, EU negotiators failed to agree on updating the MiFID securities trading rules to close the gap with Dodd-Frank.

“Food speculation, investor protection and market structure to be continued on 14th January 2013 in Strasbourg,” tweeted German Green lawmaker Sven Giegold late on Thursday, dashing hopes of a pre-Christmas deal.

This week’s talks, from banking union to MiFID, were especially frenzied because a policymaking hiatus looms from April when the European Parliament starts campaigning ahead of May elections.

“Mr Barnier wants a legacy,” said Nicolas Veron, a regulatory expert at the Bruegel think tank in Brussels.

After May, Brussels must wait for a new European Commission, driver of the legislative agenda, next October. So little of note may get done for much of 2014.

Meanwhile regulators are left to juggle conflicting demands of how hard to apply pressure on banks to shore up their capital bases while still keeping credit flowing to the economy.

There are new worries that capital levels may not be high enough, as massive fines pile up for banks caught manipulating Libor benchmarks and other bad behaviour.

TOO BIG TO SOLVE SOON

Not all that has been agreed is working out as planned.

The EU and United States are at odds over rules to make the world’s $640 trillion derivatives market safer.

One senior regulator has called it a “recipe for chaos”.

Mark Carney, the Bank of England governor who chairs the G20’s Financial Stability Board, said a global deal on requiring the world’s biggest banks to hold extra reserves was the top priority for 2014 in order to finally solve the “too big to fail” problem.

Without it, he said, regulators won’t trust each other and will continue to act unilaterally, fragmenting global capital markets, which could slow economic recovery.

“In the absence of international agreement, more capital and liquidity will be trapped locally and that is less effective and efficient,” Carney told Britain’s parliament last week.