Weidmann backs idea of eventually spinning off ECB supervisor

FRANKFURT, April 7 Mon Apr 7, 2014 6:46am EDT

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FRANKFURT, April 7 (Reuters) - The European Central Bank should consider spinning off its new supervisory arm into a separate institution, Bundesbank Chief Jens Weidmann said, adding that overburdening monetary policy is "anathema to the Bundesbank".

The Single Supervisory Mechanism (SSM), run out of the ECB, is due to take over supervision of euro zone banks in November after conducting a health check of the sector.

Weidmann supported a suggestion made by Klaas Knot, the Dutch national central bank chief, to make use of the ECB's credibility to establish the SSM before later looking to establish it as a separate institution.

"I can only agree with his view," Weidmann said in the text of a speech for delivery at the Duitsland Instituut in Amsterdam on Monday.

Weidmann argued that to strengthen the stability of Europe's monetary union, stiffened fiscal rules should be applied more consistently and "preferential" treatment accorded to sovereign debt - treated by European regulators as risk-free - should be ended.

"Overcoming the crisis is still an uphill struggle; if you don't go forwards, you go backwards," he added.

"With regard to reforms, governments therefore have to keep the pedal to the metal. In footballing terms, I would say 'the half-time whistle has blown'. However, there is no time for a break."

Weidmann made no mention in his speech of quantitative easing (QE), a policy option he floated late last month as a possibility for the ECB. However, he stressed that the ECB should not be overburdened.

"Overburdening monetary policy is of course anathema to the Bundesbank," Weidmann said.

(Writing by Paul Carrel)

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