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UPDATE 1-EU needs simple capital rules for euro zone banking union - Villeroy

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PARIS, May 29 (Reuters) - The European Union needs to set simple rules on bank capital to complete its project of bringing banks in the euro zone under a sole EU supervisor, ECB Governing Board member Francois Villeroy de Galhau said on Monday.

Speaking in his role as head of the ACPR French financial sector regulator, Villeroy said the EU also needed better coordination between the European Central Bank's single supervisor, the European Commission and national regulators.

"Two and a half years after banking union, there has been clear progress, but its construction is not yet finished. We need to finish the resolution pillar with completed and more simple rules," Villeroy told journalists in Paris.

Villeroy also called for a rapid solution to bank troubles in Italy and Portugal, saying it was "not normal" that local problems weighed on overall European banking sector.

Following the launch of the single EU bank supervisor for the euro zone, regulators have focused on coming up with new global minimum bank capital rules in the Basel Committee of supervisors.

Banks have dubbed the remaining capital rules "Basel IV," meaning a step change in capital from Basel III, the existing set of rules that were rushed through after the 2007-2009 banking crisis and aimed to toughen up capital requirements.

"We clearly are in favor of finalizing Basel III based on improved and better supervised internal models," Villeroy said.

"But we would refuse, along with other countries especially in the EU, a 'Basel IV' based on the standard method and which would therefore take real risks less well into account," he added.

European banks in the euro zone have voiced concern that proposed rules could limit their use of internal models to calculate risk exposure in favor of a so-called standard method, which the banks say would not reflect specific business realities as accurately.

Villeroy also urged the United States not to roll back regulations in place since the financial crisis as President Donald Trump has said he would do.

He also repeated a call for clearing large euro transactions in countries covered by Eurosystem supervision, which includes both the ECB and the 19 euro zone central banks. "After Brexit, we don't see how this could be in London," he added.

A Bank of France spokeswoman said different set-ups for supervising clearing were possible in the Eurosystem and that the debate had not yet been settled. (Reporting by Leigh Thomas and Julien Ponthus; Editing by Andrew Callus and Edmund Blair)