"Our banking sector is resilient, with strong capital and liquidity positions," the leaders of the 27 EU countries said in a statement at the end of a meeting devoted to the economy in general but overshadowed by plunging bank shares.

European banking stocks fell sharply again on Friday, with Deutsche Bank (DBKGn.DE) and UBS (UBSG.S) knocked by worries that actions by regulators and central banks have yet to contain the worst problems to face the sector since the 2008 financial crisis.

Dutch Prime Minister Mark Rutte said it was very unlikely the euro zone would plunge into a new banking crisis because the sector was far stronger than a decade ago.

"That is very unlikely if you see how we have organised things in Europe," he said.

Still, Deutsche Bank shares fell for a third day, dropping more than 12% after a sharp jump in the cost of insuring its bonds against the risk of default. German Chancellor Olaf Scholz dismissed market concerns over his country's biggest bank.

"Deutsche Bank has fundamentally modernised and reorganised its business model. It is a very profitable bank, and there is no reason for concern," Scholz told reporters.

STRENGTH AND STABILITY

European Central Bank head Christine Lagarde told EU leaders that European banks were safe but called on governments to push on with a stalled EU deposit insurance scheme, officials said.

"The euro area banking sector is strong because we have applied the regulatory reforms agreed internationally after the Global Financial Crisis to all of them," Lagarde said, adding that the ECB's "toolkit" was fully equipped to provide liquidity to the system if needed.

Defending the ECB's push to raise interest rates to stamp out high inflation at a time of turbulence in the financial sector, Lagarde said there was no trade off between fighting inflation and keeping the banking sector stable.

"Our toolbox enables us to address risks to both," she told the leaders, according to EU officials. "We are determined to bring back inflation to 2%. We will decide on future rates based on incoming data," she was reported as saying.

French President Emmanuel Macron also told reporters that the normalisation of interest rates was not a threat to the banking system.

Still, Lagarde called on the leaders to push on with their banking union project, started in 2012, which still lacks a European Deposit Insurance Scheme (EDIS) that would strengthen or replace the existing patchwork of national schemes.

"Completing the Banking Union" is EU code for introducing EDIS as the missing element from a project that has already created a pan-euro zone bank supervisor and a single resolution authority with a special fund to resolve failing lenders.

While most EU countries have some form of national insurance that guarantees deposits up to 100,000 euros ($108,300), there is no EU-wide scheme, nor a way for authorities to work across borders if a crisis is too much for one country alone.

The main opponent of EDIS is Germany, concerned that if deposit guarantees are mutualised at the EU level, Berlin could end up paying deposits of failing banks in other countries, like Italy, still burdened with poor credit or investment decisions from years ago.

($1 = 0.9232 euros)