BERLIN (Reuters) - A senior conservative ally of German Chancellor Angela Merkel has suggested the European Central Bank may not get new powers to supervise all of the euro zone's banks and said the existing European Banking Authority could be enhanced instead.
The European Commission has proposed making the ECB the main supervisor for euro zone banks to prevent problems at lenders struggling with bad debts from sucking weak euro zone countries deeper into the debt crisis as they borrow to finance bailouts.
Michael Grosse-Broemer, chief whip of Merkel's conservatives, told Reuters it was unclear whether the ECB would take over the role of overseeing the euro zone's banks and said it had not yet been decided which institution would become the bank supervisor.
"I would not exclude the possibility that the existing European Banking Authority (EBA) will be enhanced and reorganized," he added.
Grosse-Broemer said this would save having to reform the ECB, where responsibilities for monetary stability and banking supervision are otherwise strictly separated.
But the EBA would need to resolve its "structural defects" which have until now prevented it from being an effective supervisor, he added.
Merkel's government wants the ECB's new powers to apply only to systemically relevant or cross-border institutions - a position that got clear backing from lawmakers in her centre-right coalition this week.
She and French President Francois Hollande are due to discuss banking supervision on Saturday.
Merkel has warned against rushing to create a new pan-European bank supervisor under the roof of the ECB, but France has called for quick action.
Grosse-Broemer said there was no need to complete the reform of banking supervision by the end of the year. Michael Barnier, the EU Commissioner in charge of regulation, has said the Commission's proposal for euro zone wide banking supervision can and should be introduced by a January 2013 target date.
In the latest sign of German skepticism about these plans to move quickly to hand the power to oversee euro zone banks to the ECB, Grosse-Broemer said Germany's current deposit guarantees would not become part of any EU-wide deposit guarantee scheme.
"We need a clear-cut separation of national and European deposit guarantees," he said.
Barnier said earlier this week he did not want a new EU-wide deposit guarantee fund but rather for EU states to set up their own deposit guarantee funds, which could then borrow money if necessary.
Writing by Michelle Martin; Editing by Hugh Lawson