* European Parliament gives thumbs up to centrepiece reform
* New agency will close failed banks under ECB watch
By John O'Donnell
STRASBOURG, April 15 European lawmakers finally signed off on Tuesday on new laws to make it easier to shut problem banks after long wrangling over rules for an industry blamed for triggering the worst economic slump in a generation.
The vote in the European Parliament, shortly before it breaks up for May elections, gives the final stamp of approval for an agency to shut weak lenders in the euro zone, the last in a line of major reforms to create a banking union for the 18 countries sharing the euro.
Almost seven years since German small business lender IKB became Europe's first victim of the global financial crisis, the region is still struggling to lift its economy out of the doldrums and banks are taking much of the blame for not lending.
Unlike in the United States, where regulators and the central bank acted promptly to stem bank problems, the patchwork of national interests across Europe prevented countries from forging a united front to do the same.
A 'union', and the clean-up of banks' books that will accompany it, is intended to help change that. It begins when the European Central Bank starts policing the sector this year.
"The EU has lived up to its commitments," said Michel Barnier, the European official in charge of regulation.
"The banking union completes the economic and monetary union, puts an end to the era of massive bail-outs and ensures taxpayers will no longer foot the bill when banks face difficulties."
Crucially, the scheme introduces new rules making it easier to shunt losses onto the bondholders and even large depositors of failing banks although the conundrum of what to do if a very large bank wobbles remains.
There will also be an obligation for countries to ensure that schemes are in place to guarantee the first 100,000 euros ($138,000) in any savings account, although no European backstop is foreseen should they fall short.
The vote represents a success for the European Parliament, which negotiated with European Union countries to reduce the scope for political meddling when deciding to shut a bank.
"From now on, taxpayers will not systematically foot the bill for bank losses," said Martin Schulz, the European Parliament's president. "Clear rules to resolve a failing bank will be in place."
But for many, Europe's response has been too slow. Jamie Dimon, the chief executive of JP Morgan Chase recently said that European banks lag U.S. peers who had largely recovered from the financial crash.
Some lawmakers also point to the shortcomings of Europe's centrepiece reform, in particular the failure to tackle mega banks.
"Too big to fail banks are simply too dangerous to exist," said Philippe Lamberts, a lawmaker from the Green party.
"As long as systemic financial institutions are allowed to exist in their current shape, taxpayers will remain exposed to paying for the follies of a runaway financial industry."
The accord nonetheless means that the ECB has the means to shut banks it decides are too weak to survive, reinforcing its role as supervisor as it prepares to run health checks on the still fragile sector.
It establishes a common 55 billion euro back-up fund over eight years - quicker than planned but far longer than the ECB's watchdog had hoped. Euro zone governments will not, however, club together to make it cheaper and easier to finance.
The 18 euro zone countries do not intend to cover jointly the cost of dealing with individual bank failures, a central tenet of the original plan for banking union.
The fragility and politicised nature of Europe's banks has been highlighted by ailing Austrian state lender Hypo Alpe Adria. Vienna will sponsor a bad bank to isolate roughly 18 billion euros of bad loans extended by the bank after Joerg Haider, the far-right politician who governed its home province, earlier ramped up its activities.
Despite the bank's impact on national debt, many politicians feel Austria has little choice. Even if banking union were in place, the situation would be little different.
($1 = 0.7238 Euros) (Reporting by John O'Donnell; Editing by Ruth Pitchford)