UPDATE 2-German public bank chief touts compulsory rescues

*Banks fear stigma if they tap govt rescue package *All banks should be forced to accept govt guarantees *Berlin opposes idea of forcing banks to accept help *BayernLB CEO expected to resign (Adds sources on Berlin reaction, BayernLB CEO Kemmer expected to resign)

By Patricia Uhlig

FRANKFURT Oct 23 (Reuters) - All German banks ought to be forced to participate in the government's 500 billion euro ($643 billion) rescue package, the head of the country's association of public sector banks said.

"The rescue package is not yet sufficient to resolve questions on how to get credit circulating again," Siegfried Jaschinski told the Frankfurt Business Journalists Club.

Banks' fears of being stigmatised for using the package must be resolved urgently, which could be done if all banks were required to accept government guarantees, said Jaschinski, who is also chief executive of landesbank LBBW [LBBW.UL].

However, Berlin is opposed to the idea of forcing banks to accept its help, a source familar with the situation said.

Fellow regional landesbank BayernLB [BAYLB.UL] this week said it would use the fund after suffering more writedowns in the third quarter and a source close to the bank on Thursday said its chief executive Michael Kemmer was expected to resign.

BayernLB declined to comment, but Bavaria's finance minister and BayernLB administrative board chief Edwin Huber already announced his resignation from the posts on Wednesday.

Other German banks fear their reputation might suffer if they ask for help.

These concerns sharpened after Deutsche Bank (DBKGn.DE) Chief Executive Josef Ackermann was quoted by a German magazine as saying he would be ashamed if Germany's largest lender had to tap the rescue fund.

Other listed players, such as No. 2 lender Commerzbank (CBKG.DE) and insurer Allianz (ALVG.DE), still part owner of Dresdner Bank, have said they would examine details of the package.

Jaschinski said the rescue package as it now stands, which includes strict conditions for banks and limits on managers' salaries, bonuses and severance, would not achieve the desired results.

But he also expressed confidence that a solution could be found.

"I am not the only one who is fighting to make sure the guarantees are used throughout the country," he said late on Wednesday night.

Financial sources have said that there is growing support among board members at banks outside the public sector for joint use of the rescue fund.

Jaschinski also said talk of a possible merger between his LBBW, Germany's biggest landesbank, and No. 2 landesbank BayernLB was off the agenda for now, adding that both banks first needed to resolve how they will refinance themselves in the future.

The financial crisis has heated up discussion on the need for consolidation among the country's seven independent groups of landesbanks, which provide wholesale banking services for the savings banks in their regions. State politicians fear a loss of power and prestige if their landesbanks are acquired by rival players. (Writing by Jonathan Gould; editing by Erica Billingham and David Cowell)