FRANKFURT, Jan 29 (Reuters) - The European Central Bank is putting its reputation on the line by taking on the task of supervising euro zone banks from March next year, ECB Vice-President Vitor Constancio said on Tuesday.
The euro zone took the first step towards a banking union in December when ministers agreed to create a Single Supervision Mechanism (SSM) for euro zone banks, under which national supervisors cede some powers to the ECB.
But Constancio warned there was a "real risk" that if anything negative happened in the banking system on the ECB's watch, this could harm the central bank's ability to control inflation expectations, its key task.
"If the central bank is responsible for both price stability and bank supervision, any negative event in the second task could damage the central bank's reputation as a monetary authority," Constancio said in a speech at a banking conference.
"The risk is real because as we all know, supervision is an area that can never be perfect as it lacks the resources to see everything, meaning that accidents are always possible."
Constancio is in charge of financial stability on the ECB Executive Board and was tasked to work on the banking union project along with Yves Mersch, who joined the board in December.
Constancio stressed the importance of the next step on the road to a banking union - the creation of a single mechanism to wind down non-viable banks.
"Such arrangements are an important complement of the SSM and should be in place when the SSM would be fully operational," Constancio said. (Reporting By Eva Kuehnen)