PARIS France wants the European Central Bank to have a stronger role in overseeing banks in the single currency bloc as part of a package of urgent reforms to increase financial stability in Europe, sources said on Wednesday.
Joint supervision of banks is one of the key issues to be discussed at a European Union leaders summit in late June that will focus on deepening financial and fiscal integration to bring the raging euro zone crisis under control.
Officials in Brussels have suggested that a so-called European "banking union" could include strengthening the London-based European Banking Authority, the EU's fledgling supervisor.
Paris, however, prefers supervision of euro zone banks to remain in the single currency area.
"France is keen for the European Central Bank to play this role," said a high-level source. "There is no way that France is going to hand power over its banks to an organization based in London."
EU Council President Herman Van Rompuy has asked governments to submit written positions ahead of the June 28-29 summit. Hollande will discuss his views with Italian Prime Minister Mario Monti at a meeting on Thursday in Rome.
"It's really a working meeting to find a consensus on growth and financial stability," a second French source said.
The source said leaders were desperate to end the fragmentation of capital markets in the euro zone which has driven borrowing costs higher in countries such as Italy where state finances are under market scrutiny.
Hollande has already publicly thrown his support behind proposals for a "banking union", requiring integrated supervision of banks and a common deposit guarantee and resolution fund.
French Finance Minister Pierre Moscovici said the government was due to outline details of its proposals in the coming days.
The French president will then present his position at a four-way meeting with Monti, Spanish Prime Minister Mariano Rajoy and German Chancellor Angela Merkel in Rome on June 22, a week ahead of the summit.
GERMANY COMING AROUND
Germany has pushed back against calls for the rapid establishment of a banking union, saying it could only come as part of a drive towards deeper economic union.
Berlin's stance puts a banking union on the same time-consuming track as the treaty change needed to create a fully-fledged economic union, a process likely to take years.
But France and others want to see quicker steps to tackle the euro zone crisis and believe treaty change can be avoided.
"The German position has been softening here," said the first source. "They realize they cannot say no to everything."
Berlin may be open to handing a greater role to the ECB as Merkel's government has been dismissive of the EBA and feels it has failed in its oversight role during the crisis.
The ECB is keen to move swiftly towards cross-border supervision of the bloc's biggest banks and sees a recently agreed 100 billion euro Spanish bank bailout as a first step in that direction.
"The ECB and the national central banks are well equipped to be the backbone of the financial union," Bank of France Governor Christian Noyer wrote in the Wall Street Journal this week. "There are many benefits of keeping bank supervision close to the central banks."
France's own ACP banking regulator is affiliated to the Bank of France and presided over by Noyer.
The Commission unveiled proposals last week on banking resolution, outlining plans to force losses on the bondholders to prevent a repeat of the 2008 collapse of U.S. bank Lehman Brothers - an idea which Paris strongly favors.
"No-one wants to pay for people who have made a lot of money in an irresponsible way," said the second French official, saying there was a high level of agreement between Paris and Berlin on making private investors carry more responsibility.
(Editing by Andrew Heavens)