EU executive cautious on ECB bank supervision plan

By Huw Jones

BRUSSELS, Jan 5 (Reuters) - The European Commission gave a guarded welcome to a top central banker's call at the weekend for radical change to bank supervision, but analysts doubted the idea would fly.

European Central Bank Vice President Lucas Papademos told a German magazine the ECB, together with other central banks in the 16-nation euro zone, could become the supervisory authority for cross-border banking groups such as BNP Paribas (BNPP.PA) and Deutsche Bank (DBKGn.DE).

This could combine centralised decision-making at the euro area level, with national authorities implementing the decisions, Papademos told Wirtschaftswoche magazine.

"I believe that we -- the ECB and the Eurosystem -- would perform this task effectively," Papademos said. Eurosystem is the term used to refer to the central banks of the euro zone.

It is the first time a top ECB member has put forward such a concrete and radical plan, and signals its desire to lend momentum to a debate sparked by the credit crunch and a string of national bank rescue plans.

The industry has already outgrown a system of supervision based on national lines as 45 major cross-border banking groups account for close to 70 percent of EU bank assets.

There are efforts to improve how national supervisors share information about cross-border banks within so-called colleges of supervisors, but still under existing legal systems.

"We all agree that progress has been made in bank supervision and more progress needs to be made," European Commission spokesman Johannes Laitenberger told a daily news briefing.