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Italy's Monti says ESM should have possibility to aid banks

BRUSSELS, Oct 11 (Reuters) - The euro zone's rescue fund, the European Stability Mechanism (ESM), should be rapidly given the possibility to recapitalise banks directly as soon as a new system of bank supervision is in place, Italy's Prime Minister said on Thursday.

"Once the single supervisory mechanism is established the ESM should be rapidly given the possibility to recapitalise banks directly," Mario Monti said in a speech at a dinner hosted by the think tank, Friends of Europe.

"This is important to separate existing and future banking and sovereign liabilities," he said.

The European Commission has proposed that the European Central Bank take charge of supervising banks in the euro zone, a move that is expected to open the possibility for the ESM to assist troubled banks directly rather than via their countries' governments.

(Reporting By Luke Baker and John O'Donnell; editing by Ron Askew)

((john.odonnell@thomsonreuters.com)(+32 2 287 68 17 or +32 475 69 15 89)(Reuters Messaging: john.odonnell.thomsonreuters.com@reuters.net))

Keywords: EU MONTI/BANKS