ECB risks inflation remit if supervises banks: Weidmann

FRANKFURT (Reuters) - Putting the European Central Bank in charge of banking supervision in Europe risks compromising the ECB's primary goal of price stability, governing council member Jens Weidmann said.

In a guest column in German financial daily Handelsblatt on Friday, he also said such a union should not be rushed, and that it would need a mechanism to wind down and restructure banks that should be funded by the lenders themselves.

The mechanism "should only use national or European tax funds on a subsidiary basis or in exceptions," Weidmann said.

"Legacy risks" from the crisis should be dealt with by the member states, under whose responsibility they were created, Weidmann, who also heads Germany's Bundesbank, said.

European policymakers are looking to push through a banking union as the cornerstone of a wider regional economic integration.

But major divisions have emerged on the scale, remit and timing of the union, not least the scope of cross-border supervisory powers that would be granted to the ECB.

Germany is pushing to restrict the ECB's oversight to top banks while Britain wants to stop the central bank from taking decisions that infringe on its interests.

Weidmann also said regulatory measures should accompany the banking union to reduce banks' incentives to take on excessive country solvency risks, and the amount of sovereign bonds they can hold should be capped, Weidmann also said.

While a banking union could support a stable currency union, it was more important to get its design right than to put it in place quickly. "There is no point in building a new supporting pillar quickly, but on sand," he said.

(Reporting by Maria Sheahan; Editing by John Stonestreet)

Source: http://news.yahoo.com/ecb-risks-inflation-remit-supervises-banks-weidmann-080330361--business.html

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