FRANKFURT Deutsche Bank's CEO described the situation in Greece as critical and warned contagion to other euro zone members could lead to a crisis bigger than the one sparked by the collapse of Lehman Brothers.
Governments across the single currency bloc are pushing the banks, pension funds and insurance firms that hold Greek sovereign debt to play a role in a second rescue package for the heavily indebted euro zone nation.
Josef Ackermann cautioned against any steps that could spread the crisis to other vulnerable countries in the 12-year old currency bloc.
"If it is Greece alone, that's already big. But if other countries are drawn in through contagion, it could be bigger than Lehman," the Deutsche Bank chief said at a Reuters banking event on Monday.
The Swiss banker, who is also chairman of the Institute of International Finance, an international bank lobbying group set up to deal with international debt crisis, cautioned politicians against rushing a deal with the private sector.
European leaders have said they want precise figures on private creditor involvement by a July 3 meeting of euro zone finance ministers.
"Political leaders expect a solution by the end of the week, but we should not rush it," Ackermann said. "It is important to have a good solution. The issues are complex and need to be discussed."
At issue is how to share the burden of a new 110 billion euro ($155.8 billion) bailout for Greece being readied by euro zone politicians.
Athens also desperately needs to secure a 12 billion euro EU/IMF lifeline from its first rescue by next month to avoid an immediate default.
While many economists believe some form of debt restructuring is inevitable, European banks are eager to avoid a disorderly process that could trigger a Lehman-style meltdown of inter-bank lending markets and undermine other euro zone debt.
"We see the first signs of a stiffening of the money market," Ackermann said.
Ackermann said the lack of transparency on who holds credit default swaps (CDS) on Greek sovereign debt -- instruments that protect investors against a default -- prevented more radical action, such as a haircut on Greek debt.
The prices of CDS move depending on perceptions about a borrower's creditworthiness, and the prospect of a forced or voluntary restructuring.
"We don't know whether these are in the hands of only a few players, which could then end up in trouble," Ackermann said.
Chancellor Angela Merkel, who faces anger at home over a series of taxpayer funded bailouts for Greece, Ireland and Portugal, has promised skeptical parliamentarians that she will get the private sector involved in the latest rescue for Athens.
Banks have said they are willing to make a contribution, but have insisted it must happen on a voluntary basis, and signaled further incentives are needed.
Ackermann said investors were not prepared to "throw good money after bad," but made clear the private sector was prepared to play its part.
"It is better for us to have some bleeding than for us to have a complete meltdown," Ackermann told Reuters Insider Television in an interview after the conference.
Before investors give up hope on Greece, the country must given a chance to boost tax collection and sell privatized assets, Ackermann said.
"Imbalances that have been built up over 20 years cannot be fixed in a matter of months," he told Reuters.
(Additional reporting by Olaf Zapke, Jonathan Gould, Arno Schuetze, Kathrin Jones)
(Writing by Edward Taylor; editing by Noah Barkin and Louise Heavens)