* Europe faces moment of truth in bank health checks
* Watchdog Nouy wants to shut "zombies" that do not lend
* Says countries must quickly pool the money to do that
By John O'Donnell
BRUSSELS, March 18 Euro zone countries must
prepare to shut their failing "zombie" banks and quickly pool
the money to do it, the bloc's top regulator said on Tuesday,
ahead of a warts-and-all investigation of its still-fragile
Daniele Nouy's comments, including her plea for countries to
form a united front in solving the problem, give an early
indication of how the bloc's chief banking supervisor intends to
tackle issues that show up in health checks this year.
They may also influence talks between European lawmakers to
finalise the second pillar of banking union - the launch of an
agency to close bad banks and a fund to help cover the costs.
This would go hand-in-hand with European Central Bank
supervision of the sector.
"The banks that have to disappear are ... the zombie banks,"
the ECB watchdog chief told lawmakers in the European
Parliament, referring to banks that are so laden with bad loans
that they are unable to give fresh credit.
"I hope that action needed will be taken and we will not
have any more zombie banks," she said.
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.
Nouy, formerly a French regulator, warned that countries
needed to do more to jointly back a new fund to pay for the
closure of zombie banks, in order for the wider scheme of
controlling banks to work.
Negotiators from the European Parliament and EU countries
are trying to finalise a new regime along those lines this week.
Nouy is now leading a 1,000-strong team sifting through tens
of thousands of banks loan, health checks that economists see as
the last chance to draw a line under the crisis.
She said countries need to prepare to shut laggard banks and
should club together in supporting a fund to pay for closures.
"We need solid ... public backstops," Nouy said.
"Just like a fire brigade needs access to water ... the SRM
(Single Resolution Mechanism to cope with failed banks) needs
access to a resolution fund."
This fund is due to be built up to roughly 55 billion euros
($76 billion) over a decade, using levies from banks.
But it has shortcomings as it stands.
It is small and will initially be made up of a patchwork of
country funds without the government backing that would allow it
top up borrowings more easily and cheaply.
Nouy said barriers between national funds in the scheme
should be broken down within five years rather than ten as
planned, allowing countries to help each other if they faced a
problem bank too big to cope with alone.
She urged governments to back up the fund to allow it
borrow, warning that the fund would be "quickly depleted" by
bank closures in its early years.