UPDATE 1-Bundesbank chief - do not turn ECB into Europe's bad bank

Wed Jun 25, 2014 11:18am EDT

* German central banker tells ECB to steer clear of ABS

* Comments pose obstacle to ECB moves in market

* Weidmann: euro system must not take risks off banks (Adds quote and background)

HALLE, Germany, June 25 (Reuters) - Germany's top central banker has warned the European Central Bank against buying securitised debt, saying that such a move could turn it into the bad bank of Europe.

"The revival of the securitisation market is not a primary task of monetary policy," European Central Bank policymaker Jens Weidmann told an audience in Halle in eastern Germany.

"The euro system must not become the bad bank of Europe by taking risks off banks and passing them onto the taxpayer."

Weidmann's blunt remarks follow preparations by the ECB for possible future purchases of asset-backed securities. It is a key plank in plans to revive lending to small companies.

Now the opposition from Germany poses an obstacle to its launch.

The market is potentially large. Banks have lent almost 4 trillion euros in loans of under 1 million euros.

But securitisation evokes memories of the mortgages and car loans packaged by U.S. banks that triggered a credit crunch in 2007, leading to the collapse of Lehman Brothers bank and global financial crisis.

ECB President Mario Draghi has emphasised that only "simple and transparent" packages of debt would be considered but Weidmann's comments underscore the deep mistrust of this market. (Reporting by Reinhard Becker; writing by John O'Donnell; editing by Andrew Roche)

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