UPDATE 1-EU tries to heal rift on shielding taxpayers from bank bailouts
* EU ministers meet after earlier talks fail
* New law could impose losses on big savers of problem banks
* France demands leeway, Germany wants strict rules
* ECB's Draghi echoes Berlin, argues against flexibility
BRUSSELS, June 26 (Reuters) - The European Union will try on Wednesday to heal a Franco-German split over sharing out the costs of future bank failures under a regime to avoid taxpayers having to fund yet more bailouts.
Finance ministers from the 27 member countries will start what are likely to be tough talks in the evening after all-night negotiations in Luxembourg last weekend broke down with Paris and Berlin at odds on how to impose losses.
They are divided over how much leeway governments should have when applying new EU rules stipulating that bank shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of any collapse.
Taxpayers across much of Europe have had to fund a series of deeply unpopular bank rescues since the financial crisis erupted in 2008. Policymakers have long been looking for a new model, and a bailout for Cyprus earlier this year included forcing depositors for the first time to fund part of a bank rescue.
Although there is no deadline for an agreement, the finance ministers are meeting on the eve of an EU leaders' summit in Brussels and are under pressure to show they are tackling Europe's banking and public debt crisis.
European Central Bank President Mario Draghi called for urgent action on reform, including a "banking union" to supervise and support euro zone banks. That requires EU rules on bank failure to be in place.
"I don't think that we need to reinvent the wheel here," he told the French lower house of parliament.
Draghi appeared to side with Germany, arguing against giving countries too much autonomy to decide how to impose losses when a bank fails, as France has asked for.
"The experience in the United States is there is no flexibility, and public money is being used in exceptional circumstances and when there is systemic risk," he said.
Germany fears that the new rules on sharing out future losses with bondholders or wealthy savers could be watered down, leaving Europe's largest economy liable for billions of euros of bank debts elsewhere in the euro zone.
"What we experienced in 2008, with some making great profits but taxpayers coughing up for the losses - we don't want that anymore," Germany's Finance Minister Wolfgang Schaeuble told German radio.
Outside the euro zone, Britain and Sweden also have reservations but diplomats say they are not enough to hold up a deal. London is strongly in favour of imposing losses on investors and sparing taxpayers but wants the discretion to decide who pays and in what order.
Sweden, whose banks own a number of lenders in the euro zone including Finland, fears strict rules will make it harder for banks to raise funding on the market and wants a flexible approach.
The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, using taxpayer cash but struggling to contain the crisis and - in the case of Ireland - almost bankrupting the country.
Unlike the United States, which moved swiftly to deal with its problem banks, Europe has been reluctant to close those whose credit is crucial to the economy and with which governments have close political ties.
"Europe hasn't covered itself in glory," said Karl Whelan, an economist with University College Dublin. "The scale of banking problems was more quickly accepted in the United States. But in Europe they swept it under the carpet."
However, things could change for the 17-nation euro zone under a new system of supervision led by the ECB, which will run checks on banks under its watch next year.
If agreed in time, the new EU law under discussion could be used as the blueprint for closing or salvaging banks found to be ailing or bankrupt in the ECB's tests.
The ECB's new supervisory role is part of banking union, which could rebuild confidence in the euro zone and encourage banks to start lending again.
Binding the euro zone more tightly together to underpin the currency union is tortuous, however.
France is arguing that the new EU rules should allow countries more leeway to decide how banks' creditors are dealt with. Germany is pushing for stricter rules in which everyone has to follow an agreed, EU standard.
"For France, this is about allowing the euro zone's bailout fund to be used when banks fail," said one EU diplomat involved in the discussions. "That is not the way Germany sees it."
Whatever deal they strike will be critical in determining how Europe copes with the billions of euros of bank loans that may go unpaid if the bloc fails to end economic stagnation.
"This is not just theoretical," said one EU official with knowledge of the issue. "Everyone knows there is a black hole in Europe's banks."