UPDATE 1-German junior coalition partner seeks to change bank wind-down plan
* Leading German lawmaker wants changes to bank union deal
* Schneider's letter may raise tension in "Grand Coalition"
* Schaeuble: cabinet agreed view on winding up banks (Adds comments, details, context)
By Annika Breidthardt and Matthias Sobolewski
BERLIN, Jan 31 (Reuters) - A senior German Social Democrat lawmaker wants the euro zone to move faster in forming a fund to tackle failing banks, challenging a deal agreed in Brussels after years of wrangling.
Raising tensions in Chancellor Angela Merkel's new coalition, Carsten Schneider, the deputy parliamentary group leader of the Social Democrats, said his parliamentary bloc wanted easier decision-making rules in the 'resolution fund' for rescuing or closing failing banks.
German Finance Minister Wolfgang Schaeuble had fought to keep the onus on national governments for now to take the lead in resolving their banks' problems.
Schneider said the common fund should be built up faster, it should be bigger and decision-making should be simplified.
"The aim must be to establish the fund as a European fund as quickly as possible, and to move away from the complicated interplay between the compartments and the common fund," Schneider wrote in a letter to members of the European Parliament and obtained by Reuters on Friday.
Schneider has not always toed the SPD's party line but he is the parliamentary faction's finance spokesman for the junior coalition partner in Merkel's 'grand coalition'. His opinion could raise tensions in the cabinet and within the SPD.
Some SPD sources raised doubts that Schneider represented the view of the party leadership. But a source in the SPD parliamentary group said his post gave Schneider the right to negotiate on the subject.
A ministry spokeswoman said the government's position on banking union was "agreed among the coalition partners".
TOO LITTLE, TOO LATE
The 'bank resolution' scheme is part of Europe's banking union plan, its most ambitious project since the introduction of the euro. Prompted by the financial storm that toppled banks and rattled states from Ireland to Spain, the EU wants to build a joint framework to police banks and manage their problems.
The European Union's blueprint to close failing banks foresees a "resolution fund" into which banks are to pay about 55 billion euros ($75 billion) over 10 years.
The money would be used to finance the closing of insolvent lenders, but initially, in case of a bank wind-down, each country could only use the amount its own banks contributed. The share to be used by all would increase each year.
Some senior euro zone policymakers, including Germany's new ECB board member Sabine Lautenschlaeger and European Parliament President Martin Schulz, have expressed concerns about current arrangements for the fund.
Schaeuble's response to such critics has been cool.
"We want a functioning European fund which is operational as quickly as possible, preferably from the outset," Schneider wrote in his letter. "Likewise, we feel that the target size of the fund, currently 55 billion euros, seems too low."
He suggested the fund might be allowed to borrow on capital markets so it can start working quickly and that banks should not be allowed to deduct the levy from taxes.
In addition, Schneider argued, the rules on how to make decisions on the use of the fund were "complicated and difficult to implement" and, while a secure legal base was needed, it may not have to be intergovernmental.
"Particularly in the initial years when the fund is being built up, it should be ensured that the (fund's) board is able to take decisions allowing banks to be resolved without being subject to political decisions," he wrote.
The deal is still subject to talks between the EU Commission, finance ministers and the European Parliament, where it has come under strong criticism and which is up for election in May.
($1 = 0.7373 euros) (Additional reporting by Gernot Heller in Berlin and Tom Koerkemeier in Brussels; Writing by Annika Breidthardt; Editing by Ruth Pitchford)
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