* ECB's outright debt purchasing programme under criticism
* Coeure: not negotiating with governments on OMT
* German lawmakers fret about risks to taxpayer from OMT
* ECB policy crucial to stabilising financial markets
OSAKA, Japan, Oct 31 (Reuters) - The European Central Bank must be careful about risks to its assets, Executive Board member Benoit Coeure said on Wednesday, suggesting the bank may take a cautious approach to its new bond-buying scheme.
It was echoed by a call from the ECB's former president, Jean-Claude Trichet, for the bank to be ``extremely vigilant'' about its assets.
Coeure is widely regarded as an ECB policymaker keen on taking a pro-active role in tackling the euro zone crisis, so his comments on the risks to the bank's balance sheet may have implications for the new bond-purchase plan.
The ECB has yet to use the new plan, presented in September and dubbed Outright Monetary Transactions (OMT), but by saying it is ready to buy unlimited amounts of sovereign debt with the programme it has staved off the threat of a euro zone break-up.
``We have to care about the risk portfolio of our balance sheet,'' Coeure said in a seminar held in Osaka, western Japan.
Earlier this month, senior central bank sources told Reuters the ECB envisions buying large volumes of sovereign bonds for a period of one to two months once its OMT programme is launched, but would then suspend purchases during an assessment period.
The ECB is not in negotiations with any European government to trigger the bond purchases by the central bank, Coeure said, as pressure mounts on Spain to seek a bailout and stem a sovereign debt crisis that has rumbled into its third year.
The bond-buying plan has raised concerns, particularly in Germany, that the ECB will end up printing money to finance governments and that taxpayers will ultimately bear any losses on the debt.
ECB President Mario Draghi sought to assuage these concerns in a defence of the OMT, his signature policy plan, before German lawmakers last week and other ECB policymakers have also been at pains to defend the programme.
``We are at a time when the euro area capital markets are very fragmented because of the crisis. This should not last long,'' Coeure said, adding that the ECB will do anything it can in terms of financial infrastructure to unite the region's capital markets.
Germany's powerful Bundesbank said after Draghi presented the OMT plan in September that ECB purchases of sovereign bonds are ``tantamount to financing governments by printing banknotes''.
Trichet, the former ECB chief, joined the debate on Wednesday, telling Belgian magazine Trends central banks need to be ``extremely vigilant'' due to the risks they have assumed.
``The ECB, like its fellow central banks, must ask itself the question of the calibration of its response, and make that the measures taken correspond precisely to the scale of the dysfunctionment of the financial and banking markets,'' he said.
``Clearly, central banks have taken on risks: it's the reason they need to be extremely vigilant,'' Trichet added.
Investors and euro zone policymakers have been urging Spain to seek the aid from Europe's bailout funds is a prerequisite for the ECB to begin buying its bonds under the OMT. The aid comes with economic policy conditions attached.
Coeure dismissed any suggestion that the ECB was negotiating with Spain over the conditions for triggering OMT purchases.
``We are not going to negotiate with governments. We're not in any (OMT) negotiation in the euro area,'' he said.
``OMTs are outright operations that is part of monetary policy and based on conditionality.... (which is) needed for the (programme) to be effective,'' he said.
Spanish Prime Minister Mariano Rajoy has so far avoided seeking the precautionary credit line from the euro zone that would trigger Draghi's bond-buying scheme and hold down the country's borrowing costs.
Rajoy has said he wants to know more about the conditions for the aid and the mechanics of the ECB bond-buying, but a senior government source has said the prime minister is convinced he will eventually have to make the application.
All three major parties in Spain's parliament will invite Draghi to discuss the conditions under which the OMT programme can be implemented, a spokeswoman for Spain's lower house said on Tuesday.
Debt purchases would stop if a country did not ``respect'' the conditionality of the OMT programme, Coeure warned.
The ECB will remain ``very vigilant'' to any signs of risks to price stability, but right now the risks are balanced, Coeure said, suggesting the central bank is comfortable with leaving its benchmark rate at 1 percent for the time being.
Coeure also warned against expecting the ECB to loosen collateral standards further, in a message that the central bank thinks it is approaching the limits of its ability to prevent Europe's debt crisis from worsening.
``If we don't deliver what is necessary to support the euro as a currency, then it will be a failure as an European project. There is not so much that the ECB can do ... These are political decisions that must be taken in a democratic framework.''