UPDATE 1-Anglo Irish chairman: Europe must replace ECB funding

* Anglo chairman says ECB perhaps ill-equipped for role

* Says 35 bln eur IMF/EU bailout for banks not enough

(Adds detail)

DUBLIN, Feb 8 (Reuters)- The euro zone must quickly replace funding that the European Central Bank (ECB) provides to Irish lenders to ensure they do not bring the entire system down, the chairman of Anglo Irish Bank [ANGIB.UL] warned on Tuesday.

Alan Dukes, who is also a former Irish finance minister, reiterated that he did not think the 35 billion euros earmarked for Irish banks under the country's IMF/EU bailout was enough, saying a clean banking core would require around 50 billion euros in new capital. Irish banks' dependence on the ECB has grown massively in recent months, with lenders' funding support from the euro zone's central bank up by 50 percent in the second half of 2010.

That reliance eased slightly to 132 billion euros at the end of December compared with 136 billion a month earlier. But the Irish central bank also increased its special funding to 51.1 billion euros -- a 6.4 billion euro rise. [ID:nLDE70D10Z]

"It (the ECB) is performing a role for which it was not designed and for which it is arguably ill-equipped. To a very significant extent, the ECB is taking the place of capital markets," Dukes said in a speech.

"The euro zone must provide, in the immediate future, the supports that are needed to ensure that the Irish financial and banking crisis does not bring down the entire system."

Nationalised Anglo said separately on Tuesday that its central bank borrowings stood at 45 billion euros at the end of last year, with 28.1 billion of that borrowed under the Irish central bank's special liquidity facilities.

The bank gave the updated figures in an unaudited financial statement which said it would report a loss of 17.6 billion euros for the year ended Dec. 31, breaking its own record loss for an Irish corporate. [ID:nLDE7171ME]

Ireland's 85 billion euro IMF/EU bailout agreed late last year is designed to slowly wean Irish banks off ECB funding by forcing them to shrink their assets and start selling off loans.

Ireland's debt management agency said on Tuesday it will start an auction process for the sale of the deposits and assets of Anglo Irish and Irish Nationwide Building Society [IRNBS.UL].

But Dukes said this was not enough and that the euro zone should consider expanding its rescue fund to recapitalise distressed banks.

"Important banks in the euro zone area have significant exposures to Irish sovereign and private sector debt. The default of an Irish bank or a sovereign default in Ireland would have serious repercussions for the euro zone," Duke said.

"The ECB is now among the banks that would be adversely affected by such a default, as most of the Irish Government debt and government-guaranteed debt has ended up in the ECB and the Central Bank of Ireland as collateral via the Irish banks." (Reporting by Padraic Halpin; Editing by Hugh Lawson)