REUTERS SUMMIT-New euro zone watchdog says banks must revamp IT systems

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By Huw Jones

LONDON, May 13 (Reuters) - Many euro zone banks must overhaul their technology to ensure they can be split up swiftly if they run into trouble - without disrupting customers, Europe's newest banking watchdog said on Wednesday.

The Single Resolution Board (SRB) in Brussels was set up earlier this year to handle failing lenders after the European Central Bank took over supervision of Europe's top 120 banks.

Reorganising IT systems is seen as a key priority for the SRB's chairwoman, Elke Koenig, who is responsible for making sure the banks under her remit - which include a further 30 smaller cross-border ones, have plans on how they would recover from a big market shock, or deal with their collapse.

Banks will spend almost $200 billion globally on technology this year, up 5 percent from last year, research and advisory firm Celent estimated, as banks face increasing scrutiny on risks, systems and compliance.

"We are not sitting here for customers and then orchestrating nice funerals," Koenig told Reuters' Financial Regulation Summit in London.

"We are sitting here to make sure we have adequate planning and can protect the taxpayer."

"Banks have to do their homework on the IT front," Koenig said, adding that most don't have the technology configured so that the bank can be wound up over a weekend but still allow critical payments systems to keep running on Monday morning.

"There is a lot of nitty gritty housekeeping that needs to be done by banks that takes a bit of time but clearly we will mandate it," she added.

She declined to set a timeline, saying the complex, costly and time-consuming work would have to be done "step by step".

NO MISERABLE ZOMBIES

Koenig, the former head of German regulator Bafin, has powers to force banks to change their structure to make "living wills" workable.

The International Monetary Fund has said the SRB could help close poorly performing banks but Koenig said this was first and foremost a job for shareholders and then supervisors.

The SRB would not close a bank that met capital requirements even if it was poorly performing, she said.

"The IMF is perfectly right that we have poor performing banks and we have an issue to be solved, but it's probably more something to be addressed by the owners of the banks," Koenig said.

"Only safe and solid banks can lend to the real economy and zombie banks are probably making life miserable not just for themselves but also for the other banks," she said.

The SRB, which is still recruiting, will have 120 staff by the end of this year and will build up a fund worth 55 billion euros within eight years from bank levies for use with lenders in trouble.

BAIL IN BONDS

From January, Koenig will decide how big a buffer of "bail-inable" bonds, known as MREL, banks on her watch must hold on top of their core capital buffers to tap in a crisis.

"I would foresee that each institution does not get exactly the same number in MREL, but that the system is definitely not a patchwork," Koenig said.

The euro zone's biggest banks like Deutsche Bank (Xetra: 514000 - news) , SocGen (Paris: FR0000130809 - news) and BNP Paribas (Xetra: 887771 - news) will have to hold a similar buffer of loss-absorbing bonds known as TLAC under global rules for the world's top 30 lenders.

This has raised concerns about duplication if the two sets of bonds are not interchangeable, a worry Koenig sought to downplay.

"For me TLAC and MREL are two sides to the same coin, which means solving the too-big-to-fail for the big banks," Koenig said.

"You can merge and you have to take an intelligent stance in making sure that MREL also encompasses TLAC. I don't see them as concepts that are in conflict with each other," she added.

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(Reporting by Huw Jones; Editing by Elaine Hardcastle)