UPDATE 2-German watchdog wants bigger government role in setting benchmarks
* Benchmark setting must be independent of individual interests -Bafin president
* Bafin official expects no bloodbath for German banks in ECB stress test
* Remarks follow record 1.7 billion euro fine for banks
FRANKFURT, Dec 8 (Reuters) - German banking watchdog Bafin wants far-reaching reforms in the setting of benchmark market values such as Libor, including a more active government role, its head of banking supervision Raimund Roeseler told a German newspaper.
"Reference prices that are only based on more or less random estimates are not sound," Roeseler told Welt am Sonntag in an interview published on Sunday. "The most relevant figures also need to be checked by a governmental body. It should not be left to the private sector alone."
Last Wednesday the European Commission slapped a record 1.7 billion euro ($2.3 billion) fine on six financial institutions, including Deutsche Bank, for manipulating the London Interbank Offered Rate (Libor) and its euro equivalent Euribor.
The two interest rate benchmarks are used to help price trillions of dollars of financial contracts globally.
Roeseler's statements chime with those of Bafin president Elke Koenig, who also told Der Tagesspiegel newspaper that reform was needed.
"We have to seriously think about how we can modify the system so that it is based on real transactions and independent of individual interests," she said, according to excerpts of an interview to be fully published on Monday.
Koenig also said a mechanism for supervising trades could be considered to prevent manipulation.
The Commission is also looking into possible manipulation of foreign exchange markets, although no decision has been made about whether to open a formal investigation.
However, Roeseler said: "Currently, there is no indication that German institutions did participate in manipulation on the foreign exchange markets."
Over the weekend, European Central Bank board member Joerg Asmussen backed German Finance Minister Wolfgang Schaeuble's call for governments to keep scrutinising the banking sector, despite complaints that they had already gone far enough.
The ECB is due to scrutinise around 130 European lenders, aiming to unearth any potential risks on their balance sheets and to restore confidence in the banking industry before it takes over supervision of the top banks from national bodies late next year.
Roeseler believed German banks were well-prepared for the ECB stress test, he told Die Welt, according to excerpts of the interview to be published on Monday. "I therefore do not expect a bloodbath," he was quoted as saying.
He criticised some German banks for failing to include certain employees occupying specific risk-taking roles in their lists of staff who are subject to a new cap on bonuses.
The European Union plans to limit the bonuses of senior staff to 100 percent of their fixed pay, or 200 percent if shareholders approve a higher payout. The cap will apply to thousands of bankers in risk-taking positions.