* ECB says financial situation still fragile
* Banks remain under regulatory pressure
* Constancio backs new regulatory role, Weidmann unsure
By Eva Kuehnen and Paul Carrel
FRANKFURT, Dec 14 The European Central Bank,
poised to take over supervision of the region's banks, said on
Friday there was no room for complacency following early signs
of easing strain on financial markets.
It urged governments to push ahead with reforms.
Tension in euro zone debt markets has eased since ECB
President Mario Draghi pledged in July to do whatever it takes
to preserve the euro but some risks prevail.
Putting the ECB in charge of supervising the larger euro
zone banks is an important step to make the bloc's institutions
more crisis resilient, but more needs to be done to avoid a
renewed crisis flare-up, the ECB said.
"The situation is still very fragile in many ways," ECB
Vice-President Vitor Constancio told reporters at a presentation
of the bank's twice-annual Financial Stability Review.
"Key financial stability risks remain and there is no room
for complacency," the ECB said in the report.
The main risks are a possible renewed intensification of the
crisis if governments fall behind on their reforms, a
deterioration of banks' health and further funding strains as
money and debt markets are still not functioning properly.
Although banks faced lower refinancing needs next year than
this year, there was still a lot of pressure because of funding
restrains and higher capital requirements, Constancio said. But
he also said that a new set of tougher banking standards on
capital and liquidity, known as Basel III, would not be
implemented in 2013, which would give banks more time to adapt.
"The implementation will not be in 2013, because there were
delays in the final definition of the liquidity ratio," he said.
His ECB colleague, Joerg Asmussen, also noted the risk that
an easing of financial market pressure could encourage
policymakers to take their foot off the gas.
"The work on (reform efforts) must be continued vigorously,"
he told Reuters.
The banking union -- a three-part process which involves
creating a single supervisor, establishing a fund to wind down
problem banks and fully coordinating national schemes that
guarantee deposits -- is seen as key to address such risks.
Following months of negotiations, EU finance ministers
agreed on Thursday to hand the ECB authority to police directly
at least 150 of the euro zone's biggest banks and to intervene
in smaller banks at the first sign of trouble.
"Those 150 banks represent 85 percent of total assets in the
euro area ... which I would say is more than enough," Constancio
said, adding that the single supervisory mechanism had legal
competence over all euro zone banks.
But Jens Weidmann, head of Germany's Bundesbank and member
of the ECB Governing Council, suggested EU finance ministers
should have given the ECB oversight of fewer euro zone banks.
"One could have drawn the circle of systemically relevant
banks a little bit tighter," Weidmann was quoted as saying by
German magazine Wirtschaftswoche. "I'm not convinced that the
ECB Governing Council is the ideal body to decide whether a bank
should be closed or not."
The next step is to establish a fund to wind down troubled
banks, which Constancio said should be modelled on the U.S.
Federal Deposit Insurance Corporation (FDIC).
"This is not about creating a European fund with big amounts
of money to use for resolution," Constancio said. "You can look
to the example of the U.S., where the FDIC does this task."
The FDIC had dealt with more than 400 troubled banks since
2008 without using public money, Constancio said, adding that
the resolution mechanism should not be used to bail out banks,
which was the responsibility of governments.
"It's about bail-in -- it's not about bailout -- in order to
minimise any possible contribution of public money to the
resolution of banks. That's one of the lessons of the crisis,"