UPDATE 1-ECB's Lautenschlaeger: European banking needs one mechanism for failure

Fri Feb 28, 2014 11:02am EST

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(Adds Bundesbank's Dombret, Germany's Schaeuble)

FRANKFURT Feb 28 (Reuters) - The new banking supervision housed in the European Central Bank must be accompanied by a single mechanism to deal with failing banks, ECB Executive Board member Sabine Lautenschlaeger said on Friday.

From November, the ECB will supervise directly around 130 of the bloc's top lenders as part the European banking union that aims to create a more level playing to make banks more resilient for future crisis.

The rest of the roughly 6,000 euro zone banks will remain under the brief of national supervisors, though the ECB will have powers to intervene if it deems necessary.

EU countries and the bloc's parliament are attempting to seal final agreement on a scheme to tackle failed banks within the coming weeks. Time is running out with the parliament due to disband shortly before elections in May.

Lautenschlaeger said in a panel discussion at a Bundesbank conference that a bank resolution mechanism needed to be established over the next couple of years, "because one cannot do European supervision and promote resolution on national levels. That's is simply a no-go".

In closing remarks at the same conference, Bundesbank board member Andreas Dombret called on euro zone countries to agree on a resolution mechanism soon.

"How can a European supervisory body be credible if it cannot resolve a bank when necessary?" Dombret asked.

"Thus, I appeal to those involved in the negotiations to reach an agreement on the European Single Resolution Mechanism prior to the European elections in May," he added.

Earlier, German Finance Minister Wolfgang Schaeuble told the conference he did not expect euro zone finance ministers to agree a compromise on a bank resolution mechanism when they meet early next month.

"Surely not - that would be against any experience. We will find it as soon as it is needed, not before," Schaeuble said.

(Reporting by Sakari Suoninen; Writing by Paul Carrel)

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