* EU financial markets chief: banks would pay for clean-up
* IMF head Strauss-Kahn lends support to European fund idea
* Britain opposed to scheme bankrolled by state
* Commission to propose draft law in spring 2011
(Adds Commission timetable, Goodhart, Santander)
By John O'Donnell and Jan Strupczewski
BRUSSELS, March 19 The European Union is considering making banks pay for an emergency wind-up fund in case one of them goes bust, in an effort to prevent another spiral like the one that followed the Lehman Brothers collapse.
Coping with banks on the verge of failure is central to the political agenda in Brussels and on Friday the bloc's financial markets chief Michel Barnier unveiled his ambitious plan, one that could face opposition from Britain.
"The financial institutions are going to have to be called upon to contribute to such a fund," said Barnier, commenting on a facility that would be tapped for a bank in serious difficulty. "Why should our citizens be footing the bill?"
Speaking at the same event, the head of the International Monetary Fund, a lender of last resort for governments, proposed a similar scheme to help flagging institutions.
"What I think is needed is a European resolution authority, armed with the mandate and the tools to deal cost-effectively with failing cross-border banks," Dominique Strauss-Kahn said. [ID:nBRQ009776]
European governments, which were forced to bail out flagging lenders, are now looking for a way of preventing a repeat.
But who should pay to salvage a failing cross-border bank has provoked argument. The Commission will present a draft law in spring 2011 to harmonise tools national supervisors use to handle failing banks in a region where about 35 cross-border firms make up 70 percent of all deposits.
Bank of England Deputy Governor Paul Tucker sounded a note of scepticism when he said a European fund would have to be "absolutely ginormous, a trillion euros maybe, to solve this problem".
The potential for deeper coordination could be capped as Joerg Asmussen, deputy German finance minister, said bank crisis management powers must remain at the national level.
"I favour the 'polluter pays' principle," Barnier, the commissioner in charge of a regulatory shake-up of the sector, said. "Something similar should also apply in the financial sector."
"We have to be clear about a resolution fund," said Barnier, a former French foreign minister who puts forward new laws on financial services for the 27-country European Union.
"We have to have a regime that aims at restructuring the banks. If we could harmonise the national resolution tools, this would be a first step."
Charles Goodhart, a former Bank of England monetary policy committee member, said creating a European resolution fund before harmonising relevant national laws "puts the institutional cart before the legal horse." The Commission said it would work further on options to deal with differences in national solvency laws.
As the banking crisis unfolded, national governments in Europe rushed to ring-fence problems on their own territory.
Politicians are keen to prevent a repeat of the Fortis FOR.BR debacle, when an unexpected decision by the Netherlands to nationalise parts of the financial group in its territory forced neighbour Belgium to do the same.
One of Europe's biggest banks, Santander (SAN.MC) of Spain, said it would not support a European resolution authority or fund, preferring coordination among national frameworks.
Britain, home to the bloc's biggest banking centre, has made clear that it would "push back very strongly against any central fund an EU state has to pay into".
London has said it does not want to be locked into a system that will force British taxpayers to bail out banks from another country and it will be suspicious of Barnier's suggestions.
The Commission, the EU executive, has warned that in any future financial crisis there may be no alternative other than to use public funds to support the banks.
Efforts by the Group of 20 major economies focus on forcing big banks to draw up living wills -- plans for how they would handle failure -- by the end of this year. But differing national bankruptcy rules make this difficult.
The Financial Stability Board, tasked by the G20 to coordinate market reform, will put forward proposals later this year on handling cross-border bank crises.
On Friday, FSB adviser Eva Huepkes said it could be possible to give banks access to markets only if they have resolution plans that meet global standards.
(To read about plans by Basel committee for big banks, double click on [ID:nLDE62H2AF])
(Additional reporting by Huw Jones in London, editing by Dale Hudson/Ruth Pitchford/Toby Chopra)