ECB's Knot backs Dijsselbloem comments on bank rescues

AMSTERDAM, March 29 Fri Mar 29, 2013 6:00am EDT

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AMSTERDAM, March 29 (Reuters) - European Central Bank Governing Council member Klaas Knot said on Friday there was "little wrong" with Eurogroup chair Jeroen Dijsselbloem's recipe for dealing with future euro zone banking crises, a newspaper reported.

Dijsselbloem, the head of the euro zone's finance ministers and like Knot a Dutchman, said on Monday the rescue programme agreed for Cyprus - the first to impose a levy on bank deposits - would serve as a model for future crises.

Those comments - which Dijsselbloem later rowed back on -prompted a market selloff and led two other ECB policymakers, including executive board member Benoit Coeure, to say on Tuesday that Cyprus was a unique case.

But Knot, who sits on the bank's main decision-making body, said: "There is little wrong with Dijsselbloem's remarks.

"The content of his remarks comes down to an approach which has been on the table for a longer time in Europe. This approach will be part of the European liquidation policy."

Knot's comments, reported by Dutch daily Het Financieele Dagblad, were accurate, a spokesman for the central banker said.

They threaten to further muddy the waters over an issue that continues to divide monetary policymakers and senior politicians in the currency bloc - who should foot the bill for cleaning up the region's underperforming banks.

In a speech on Thursday night in Amsterdam, Knot said euro zone banks needed to clean up their balance sheets by winding down loss-making operations.

"Firstly, there has to be transparency about losses in the banking sector. Secondly, banks have to wind down their loss-making operations," Knot said.

Under the Cyprus bailout, bank depositors whose accounts hold more than 100,000 euros face heavy losses.

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