ECB official calls for urgent financial overhaul

(AP) FRANKFURT - A top European Central Bank official says the 17 countries that use the euro need an "urgent overhaul" of their banking and financial system to deal with the debt crisis, including a multinational authority with the power to restructure and bail out banks.

Peter Praet said in a speech Friday in Milan that the eurozone crisis has been undermining much of the crossborder financial markets' integration brought about by the euro. In particular, bond and money markets now charge some countries much higher interest premiums because of a perceived increase in risk.

"The euro area financial stability framework needs an urgent overhaul," said Praet, who is part of the six-member executive committee that runs the ECB's daily operations.

He called for a eurozone-wide banking regulator with the money and authority to restructure banks operating across borders. Fears that banks may need government bailouts, potentially overwhelming public finances, have been a key driver of the eurozone debt crisis, most recently in Spain. Yet banking regulation remains largely at the national level, where officials have been slow to force shaky banks to restructure. Restructuring or recapitalizing banks can be expensive for governments and shareholders.

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Praet also called for a eurozone-wide deposit insurance program similar to the U.S. Federal Deposit Insurance Corporation. Both measures would be funded by the private sector, not the government, so that taxpayers "would be shielded from picking up the bill for future banking crises," Praet said.

The eurozone countries already have national deposit insurance but a stronger backstop would offer depositors more reassurance and forestall the possibility of destabilizing bank runs.

Both ideas have been widely discussed by economists but so far EU officials and member governments have not moved forward on the issues.