Merkel lawmakers want ECB to supervise major banks only

BERLIN (Reuters) - Lawmakers from Germany's ruling coalition want the European Central Bank's (ECB) planned new powers of cross-European bank supervision to apply only to systemically-relevant or cross- border institutions, according to a copy of their proposals.

Members of parliament from Chancellor Angela Merkel's conservatives and their Free Democrat (FDP) allies also reject proposals for cross-border bank deposit guarantees, which they want to remain the responsibility of individual states.

The proposals for discussion in the Bundestag (lower house of parliament) were laid out in a document obtained by Reuters on Wednesday and reflect Merkel's own clearly-stated views on what supervisory powers the ECB should assume.

The centre-right chancellor said earlier this week that the preparation of the ECB's new oversight powers should not be rushed to meet Europe's self-imposed January 2013 deadline.

Her MPs echoed her wariness, saying in the proposal: "Quality must come before speed in all the preparations."

Merkel has also warned that the recapitalization of Spanish banks via the euro zone's new permanent bailout mechanism, the ESM, cannot go ahead before stronger cross-border banking supervision has been put in place.

Differences over the shape and speed of oversight reforms were in evidence when finance ministers met in Cyprus last weekend. Germany has serious reservations about unified deposit guarantees, fearing its savers would be liable for the deposits of other countries' citizens - echoing its concerns about taking on liability for other euro zone states' debts.

"Deposit guarantees will not be unified across Europe," said Merkel's lawmakers in the document. "Deposit guarantees may be harmonized but the responsibility must remain national."

They also emphasized that the plan must not compromise the independence of the ECB nor its prime objective of guaranteeing monetary stability in the euro zone, which would require a clear separation of responsibilities.

"Competence for monetary, fiscal and supervisory policy must not be assumed by the same decision-makers," they said.

(Reporting by Mattias Sobolewski; Writing by Stephen Brown, Editing by Gareth Jones)