UPDATE 1-Sweden regulator:EU bank union plan could lead to split

(Adds central bank comment, background)

STOCKHOLM, Oct 10 (Reuters) - The head of Sweden's financialwatchdog said on Wednesday that European banking union plansrisked creating a division between members of the pact and thoseoutside it.

He also cast doubt on the European Central Bank's ability tosupervise a sector as large as banking.

"This would be at odds with what we have been working towardfor so many years - the creation of a single market," FinancialSupervisory Authority head Martin Andersson told reporters.

Andersson stressed that banking supervision should becomplemented by a system for dealing with failing banks beforebeing introduced.

European Union leaders agreed at the end of June to set up asingle supervisory authority to oversee 6,000 banks in Europe,with the aim of having it in place by the end of the year,although that deadline looks ambitious.

But having a single body supervising all banks across theregion, which under the proposals could be the ECB, wasproblematic, Andersson said.

"This involves a large amount of cases and one probably hasto consider how to handle the logistics and how to make thesedecisions in an informed manner," he said. "That will be veryhard, and I think that one may be underestimating thedifficulties."

Speaking separately, Swedish First Deputy Central BankGovernor Kerstin af Jochnick told reporters the bank also hadquestions about plans for a European banking union.

"We understand that one must strengthen the euro zone, butfrom our point of view there are quite a lot of questions whichcome up," af Jochnick said.

Swedish banks are active in euro zone countries Finland andEstonia. Finance Minister Anders Borg has also criticised thebanking union plans, saying rules should not be applied to thesebanks by a regulator where Sweden has no say.

(Reporting by Johan Ahlander and Daniel Dickson; Writing byNiklas Pollard; Editing by Hugh Lawson)

((Niklas.Pollard@thomsonreuters.com)(+46 70721 1110)(ReutersMessaging: niklas.pollard.reuters.com@reuters.net))


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