FRANKFURT, Nov 10 (Reuters) - The European Central Bank should scrap plans for industry-wide rules to force banks to clean up bad loans, the head of the European Parliament's influential economic affairs committee said on Friday, as lawmakers dug in their heels in a dispute.
At the center of the row is how best to tackle European banks' bad loans, which stand at more than $1 trillion, a thorny issue that has divided euro zone countries and is now driving a wedge between the ECB and the EU's parliament.
The ECB faced protests after announcing timelines for banks to set aside money for losses on new loans that have gone roughly three months unpaid. That angered EU lawmakers, who are trying to draft their own rules on soured credit.
Earlier this week, the ECB's chief supervisor Daniele Nouy traveled to Brussels, attempting to calm down the dispute with a promise to delay and improve the new rules.
But on Friday, Roberto Gualtieri demanded the ECB ditch the plan altogether.
"We reject a general rule for all banks, which can only be established by legislation," Gualtieri told Reuters. "The ECB can influence a bank's provisioning of bad loans only individually."
Gualtieri said it should be for the ECB to prove lenders had done too little to tackle bad loans, shifting the burden onto the supervisor to justify taking action.
"It is too early to say if the ECB has done enough to meet our concerns," said the Italian lawmaker. "If it does not, we will consider all options."
Last month, the Italian head of the European Parliament, Antonio Tajani, said the ECB, in tackling the bad loans problem, had overstepped its bounds. That view was upheld by the assembly's legal office.
Italy is worried the new rules would be applied to the euro zone's $1 trillion bad debt mountain, a quarter of which sits at Italian banks.
Any clean up could come at a heavy cost for Italy, the euro zone's third-largest economy and already its most indebted. (Reporting by John O'Donnell; Editing by Mark Potter)