UPDATE 2-Germany proposes Bundesbank deputy for ECB board seat
* Sabine Lautenschlaeger is expert in banking supervision
* Tipped to become vice-chair of new EU banking watchdog
* Asmussen's international relations portfolio open
By Annika Breidthardt and Andreas Rinke
BERLIN, Dec 17 (Reuters) - Germany has proposed Sabine Lautenschlaeger, a vice president at the German Bundesbank, to take the seat on the European Central Bank board that is being vacated by Joerg Asmussen, a government spokesman said on Tuesday.
Asmussen announced on Sunday that he would be returning to Berlin after just two years on the ECB's six-member executive board, to become state secretary in the labour ministry.
Replacing him will entail some reshuffling of tasks on the board and comes at a time when the ECB is reaching the limits of its conventional monetary policy and may be forced to explore new ways to keep deflationary risks at bay.
Little is known about Lautenschlaeger's views on monetary policy, but she has a solid track record in banking supervision, having worked at German financial supervisor Bafin before joining the Bundesbank in 2011.
She has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and has argued against treating government bonds as risk-free assets on banks' books.
The prime candidate to become the Executive Board's representative at the new European banking watchdog, the Single Supervisory Mechanism, Lautenschlaeger is seen serving as that body's vice-chair. That would give her a prominent role as the ECB will have the right to object to the SSM's proposed decisions.
Yves Mersch, Vitor Constancio and Peter Praet are also seen as in the running for that job.
The most important and time-consuming part of Asmussen's job has been taking care of the central bank's international relations. Most likely candidates for that portfolio are Mersch and Benoit Coeure.
ECB President Mario Draghi will have the last word on who does what on the board, which forms the nucleus of the policymaking Governing Council.
Before Lautenschlaeger, 49, joins the bank, she will need to go through the formal selection process. Now that she has been officially nominated by the German government, European Union finance ministers will consider all candidates for the post and make their choice.
The ECB will be asked for comment, as will the European Parliament, which will conduct a public hearing with the contender in its Economic and Monetary Affairs Committee before discussing it in a parliamentary plenary session.
The parliament has no power to veto an appointment.
Finally, the Council of the European Union, at the level of heads of government and heads of state, then formally appoints the candidate.
The fact that Lautenschlaeger is a woman will win her points with the EU parliament, which held back the appointment of Yves Mersch to the Executive Board last year on the grounds that not enough women had been considered for the post.
In the 15-year history of the ECB, only two women, Finland's Sirkka Hamalainen and Austria's Gertrude Tumpel-Gugerell, have served on the board.
Traditionally, the four largest euro zone countries - Germany, France, Italy and Spain - have had one seat each on the board, although Spain has been without a representative since mid-2012, when Jose Manuel Gonzalez-Paramo's term ended.