CORRECTED - OFFICIAL-UPDATE 1-Nowotny: No need to bypass banks on credit
* Nowotny sees no need for ECB to bypass banking channel
* Contrasts recent comments from Bundesbank's Weber
* Too early to think about adding to covered bond plan
* CEEU situation now stabilising
(Corrects references to allocation of covered bond spending after Austrian central bank says it will be based mainly on a country's capital key, but not entirely)
VIENNA, July 6 (Reuters) - ECB Governing Council member Ewald Nowotny appeared at odds with his Bundesbank counterpart Axel Weber on Monday, insisting there was no need to bypass the banking channel to ensure credit reaches firms and consumers.
He also said it was too early to consider scaling up the ECB's 60 billion euro ($83.87 billion) unorthodox plan to buy up mortgage and public sector-backed debt.
Nowotny who heads Austria's central bank, said he saw "no necessity" to bypass banks to kick start the flow of credit. "For banks, it is in their own interest to provide credit," he told a news conference.
Data continue to stoke concerns the finances of firms and consumers are being strangled as banks rein in lending. Banks hoarded a record amount of cash at the ECB figures revealed on Monday [ID:nFAT004776] and growth in lending has slowed to an all-time low. [ID:nLU302287]
ECB President Jean-Claude Trichet again urged banks to lend over the weekend. [ID:nL5643198] Nowotny's comments also put him at odds with authorities in Germany.
Bundesbank President Axel Weber has raised the prospect the ECB could circumvent the banking sector altogether if lending doesn't free up.
German Finance Minister Peer Steinbrueck piled on further pressure over the weekend, saying the government would sit down with the Bundesbank and come up with a solution unless there was a turnaround from banks. ID:nL5164229]
Overnight deposits at the ECB spiked after the bank poured 442 billion euros into money markets on June 25. Nowotny shrugged off worries that banks may hoard the funds, rather than lend it.
"A strategy of taking money from the ECB and then putting it back into the deposit facility can only be short-term," he said Continued...
