LONDON (Reuters) - The European Central Bank would only supervise euro zone banks on a day-to-day basis if they had assets of more than 30 billion euros, European Union president Cyprus said in a draft compromise aimed at easing German concerns.
The bloc's finance ministers meet on Wednesday to try and broker a deal on the first step towards a banking union, for their leaders to endorse at a summit in Brussels on Thursday and Friday to meet a self-imposed end of year deadline.
Germany only wants the ECB to supervise larger banks -- leaving its savings banks in particular still under local supervision -- while France and other member states say it should have powers to intervene in any of the euro zone's 6,000 lenders.
The draft proposes that a euro zone bank would not be considered "significant", meaning it would come under direct ECB oversight, unless it had assets worth more than 30 billion euros ($39 billion), or assets worth more than a fifth of the home country's economy, or the bank operated in at least three euro zone countries.
German deputy finance minister Steffen Kampeter told reporters in Berlin that banks that did not present a systemic risk should remain under the oversight of national authorities.
"We don't want all the banks lumped together," he said.
Cross-border supervision -- the first step towards a banking union -- is likely to come into full effect from the start of 2014 and is seen as key to ending a five-year banking crisis.
It would allow banks to receive money directly from a new rescue fund rather than see already heavily-indebted countries going further into the red to shore up a lender.
If the 30 billion euro threshold is approved, it would mean all but one of the German savings banks, would be excluded from the ECB's direct oversight. Most of Germany's cooperative banks would also be excluded.
The ECB, however, could still "at any time, on its own initiative or upon request by a national competent authority" decide to intervene directly in a euro zone bank that was deemed not to be significant.
The Cypriot plan also seeks to smooth Britain's concerns that the ECB could use its clout as a supervisor to harm the UK financial services sector, the EU's biggest and which will not be part of the banking union.
The draft says the Frankfurt-based central bank could not discriminate against any member state for the provision of banking or financial services in any currency.
Britain has taken the ECB to the European Court of Justice to try and quash an ECB policy of requiring clearing houses that handle large amounts of euro denominated business to be based in the euro zone.
There is still, however, no agreement in the compromise on how the ECB's board of supervisors would take decisions, with Britain pushing for "out" countries to have a say.
Critics say the banking union with just the ECB at its core will ultimately be ineffective unless there is also a single resolution authority and common bank deposit guarantees, two elements that will be even harder to agree on than the ECB's role and which are not even under discussion yet.
Reporting by Huw Jones, John O'Donnell in Brussels, Alexander Huebner and Ed Taylor in Frankfurt, editing by Mike Peacock