UPDATE 1-EU to check if German regulator hampering capital flow
* European Commission to scrutinise German regulator
* EU to focus on enforcement of bank liquidity rules
* EU to review concerns local rules inhibit capital movement (Adds Commission confirmation)
BRUSSELS/FRANKFURT, Jan 3 (Reuters) - The European Commission is looking at whether German bank regulator BaFin may be inhibiting free movement of capital by the way it enforces liquidity rules.
BaFin's policy that banks - including subsidiaries of foreign lenders - keep sufficient liquidity for their German operations has drawn criticism from pan-European lenders.
"The Commission and the (European) Banking Authority in London are keeping close tabs on some measures being adopted by national supervisors and we are following this very closely," a spokesman for European Commissioner Michel Barnier said.
"We are looking at what various different supervisors have been doing, including what is being done in Germany," he said on Thursday.
German daily Handelsblatt reported that units of foreign banks with plenty of liquidity were being prevented from transferring funds to their struggling parent companies because of BaFin's rules.
The Bank of Italy is said to have raised the issue about BaFin with the European Banking Authority (EBA), Handelsblatt said, citing supervisory sources. The paper also said Italian bank UniCredit, which has a large German subsidiary HVB, was said to have criticised the BaFin rules.
BaFin declined to comment, as did the EBA in London.
The euro zone crisis has made it harder for banks in countries with weaker finances to get access to market funding.
Debt-laden Italy's vulnerability to the euro zone sovereign crisis kept the country's lenders out of wholesale debt markets in the second half of 2011, a move which prompted rating agency Moody's to downgrade 26 Italian lenders in May.
Italian banks have since sought other ways to tap funds, such as selling bonds to retail investors.
UniCredit bought HVB in 2005. For full-year 2011, HVB paid its parent company a dividend of around 1 billion euros ($1.3 billion). HVB was not available for comment. ($1 = 0.7553 euro) (Reporting By John O'Donnell; Additional reporting by Edward Taylor, Alexander Huebner, Andreas Kroener, Ethan Bilby and Huw Jones; Writing by Edward Taylor; Editing by Hans-Juergen Peters)
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