ECB's Nowotny attacks "lead supervisor" bank regulation

BRUSSELS (Reuters) - The European Union cannot deal with the financial crisis effectively if multinational banks are regulated solely by their home countries, European Central Bank Governing Council member Ewald Nowotny said on Thursday.

Nowotny, who headed the rescue of Austrian bank BAWAG after a financial scandal two years ago, said he preferred a slow movement to a European Union-wide supervisor which gave a strong role for national regulators.

"The lead supervisor approach ... would be challenged for its lack of legitimacy, transparency, and accountability," the Austrian central bank governor told a financial stability seminar at the National Bank of Belgium.

"It goes without saying that these are extremely unfavourable preconditions for effective crisis management."

Supporters of the 'lead supervisor' approach, where a national regulator in a bank's home country acts as a one-stop shop for oversight, argue that it simplifies banks' reporting requirements and allows one regulator to take a holistic view of a bank's activities.

Nowotny said Austria could end up supervising its banks' extensive activities in diverse eastern European markets, yet have no control of one of its biggest domestic banks, Bank Austria, which is part of Italy's UniCredit.

But he said until European Union countries can agree on a joint fund or binding commitments to bail out multinational banks, most regulation will have to remain nationally based.

Better informal cooperation between national regulators would help deal with the difficulties of regulating multinational banks, he added.

(Reporting by Marcin Grajewski and Ilona Wissenbach, writing by David Milliken, editing by Patrick Graham)