UPDATE 2-ECB outlines wide supervisory role, at odds with Germany
* ECB, at odds with Germany, wants to supervise all banks
* ECB also wants resolution body separate to supervisor
* Says EU Treaty allows ECB to take on supervisory tasks (Writes through with background)
By Paul Carrel
FRANKFURT, Nov 28 (Reuters) - The European Central Bank set out its terms on Wednesday for becoming a pan-European banking supervisor and said it should cover all lenders that join in a planned banking union, putting it at odds with Germany.
The German government wants to keep primary oversight of its community savings banks within the country, and is seeking to limit the ECB's remit to systemically important lenders.
But the ECB, setting out its position in a legal opinion, said it was important that it supervise all banks participating in the banking union "to preserve a level playing field among banks and prevent segmentation in the banking system".
Such a move would mean the central bank would supervise a broad range of lenders, from large European multinationals to small local banks.
Seeking powers to delve deep into national banking sectors, the ECB added that it "should be able to have full recourse to the knowledge, expertise and operational resources of national supervisory authorities."
Some ECB policymakers, led by Bundesbank chief Jens Weidmann, are worried the supervisory responsibility could destabilise the ECB by conflicting with its monetary policy role. They want to nail down strict rules to separate these tasks.
Without this separation of responsibilities, the ECB could, for example, allow information from its supervisory work influence its interest-rate setting policy, which should be focused on delivering stable prices.
The central bank sought to head off those concerns, saying: "There should be a strict separation between the ECB's new tasks concerning supervision and its monetary policy tasks".
Making the ECB the supervisor for lenders chiefly in the 17 countries that use the euro would be the first of three pillars in a banking union and one EU leaders have committed to complete by the year-end.
Complementing the new supervisory regime with two additional pillars - a central scheme to wind down banks and a combined means of deposit protection to prevent bank runs - would complete the banking union.
A resolution authority to shore up or wind down troubled banks is "a necessary complement" to the supervisor to "achieve a well-functioning financial market union", the ECB said.
"Such a mechanism should be established, or at least there should be clear deadlines for its establishment, when the ECB assumes its supervisory responsibility in full," it added.
Officials familiar with the issue say the ECB has proposed that the EU's powerful antitrust chief be given a permanent role for shutting down weak banks that survive largely on central bank funding.
Some euro zone officials have privately expressed concern about the legal basis for the ECB taking on the supervision role - the first of three pillars in plans for a banking union aimed at making the euro zone more robust.
The ECB dismissed those concerns, stating that the EU Treaty "constitutes the appropriate legal basis for rapidly and effectively conferring specific supervisory tasks upon the ECB". (Editing by Hugh Lawson)
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