UPDATE 2-ECB urges euro zone to share bank rescues

* Draghi calls for pan euro zone bank rescue approach

* Constancio says bailout fund only way to deal with big banks (Adds detail, background, quotes)

By Marc Jones

FRANKFURT, April 26 (Reuters) - The European Central Bank called on authorities to set up a body to manage bank rescues in the euro zone, marking the central bank's strongest intervention yet in the debate on whether the costs of bailing out troubled banks should be shared.

Having been firmly rebuffed by key euro zone members so far during the debt crisis, the idea of a rescue fund that would cover all banks in the currency bloc is now gaining traction as policymakers begin to suspect it may be the only way of snuffing out investors' fears about the bloc's fragile banks.

"The case for strengthening banking supervision and resolution at a euro area level has become much clearer (as a result of the crisis)," ECB President Mario Draghi said at a conference on financial integration.

"Work on this would be most helpful at the current juncture," he added.

The bank's vice president, Vitor Constancio, laid out the ECB's priorities.

"The sequence now is to go as much as possible for a pan- European resolution regime that is harmonised," he said.

"Also for the biggest systemically relevant banks, there are around 36 big banks, we really need a resolution fund, because that is the only way of overcoming the very thorny question of burden sharing in a crisis."

U.S. EXAMPLE

In a later panel he fleshed out where the money could come from.

Responding to a statement from economics professor Andre Sapir that euro zone taxpayers would have to fund such actions, Constancio agreed but said income from bank taxes could also contribute.

He urged the euro zone to copy a body the U.S. government has created to guarantee deposits and wind down failed banks.

"What we need is really a solution that would be similar to what in the U.S. is the FDIC (Federal Deposit Insurance Corporation)."

"The FDIC resolved, liquidated and restructured more than 400 banks since the crisis began, some of them sizable in European terms," the ECB's number two added.

How to cope with failing banks is one of the central questions that has occupied politicians and officials in the almost five years since the banking crisis started in Europe.

Plans, which are being drafted by the EU's executive, the European Commission, have been repeatedly held up and are now not expected before June.

Nadia Calvino, number two in the European Commission's Internal Markets and Services department, noted the long-held resistance to the idea of sharing the costs of bank bailouts and wind downs but added that "maybe the mood was changing." (Reporting by Marc Jones, additional reporting by John O'Donnell in Brussels; Editing by Elaine Hardcastle)