CORRECTION - WASHINGTON - RPT-UK's FSA-Banks themselves must decide on rescue fund

WASHINGTON, Oct 20 (Reuters) - Britain's financial watchdog on Saturday said it was watching U.S. efforts to forge a rescue fund for ailing debt instruments with interest but that it was for financial actors themselves to decide whether to participate.

"It will either fly or it won't fly. We watch it with interest and we will see what will happen," said Callum McCarthy, chairman of Britain's Financial Services Authority, responsible for policing British banks.

"It is for people to make up their own minds whether they believe this generalised approach is the best approach or whether they wish to do something more specific," he said on the sidelines of a banking event.