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New euro zone fund for troubled banks may face delay - chair

By Padraic Halpin

DUBLIN (Reuters) - A new euro zone fund for troubled banks may face a one-month delay and not go live in January, a prospect that would be a major embarrassment for a critical element of banking union, its chair said on Friday.

The euro zone's Single Resolution Fund (SRF) will only become operational on January 1 if participating member states representing not less than 90 percent of the aggregate of weighted votes ratify the agreement underpinning it by Monday.

"All of you know how Brussels works, how member states work, there's always big trouble until the end. I think for the time being I am still hopeful we will have the relevant votes by Monday night but it is definitely tight," SRF chair Elke Koenig told a conference in Dublin.

"Let's keep our fingers crossed that we'll get there. It is clearly critical. It would be a major embarrassment if we had to postpone by one month to become operational by February 1."

A European Commission official confirmed that if the target is not reached by midnight Monday, the new fund could not start up in January, even if ratifications were wrapped up a few days later. Technical issues would require a delay of at least a month.

The European Commission said that after the nine countries yet to ratify the agreement were urged to do so earlier this week, only Luxembourg had yet to send an indication of when it would ratify the intergovernmental agreement.

A Commission spokeswoman said Ireland, Lithuania and Slovenia all ratified the agreement this week. The Italian and Maltese parliaments had already approved the law but had not yet deposited the so-called ratification instrument.

The other countries that were sent reminder letters included Belgium, Estonia and Greece. Luxembourg was the only country that is not cooperating, the spokeswoman said.

If Italy does ratify the agreement, the 90 percent target should be reached.

Under the banking union project, all large euro zone banks are now under a single supervisor -- the European Central Bank -- and a common method of winding down banks that fail has been put in place, including the joint fund to cover the cost.

The fund will be financed from annual contributions from banks, but will only reach its target size of 55 billion euros ($58.20 billion) after seven years, which could have left it vulnerable if a banking crisis strikes at the beginning of its operations.

European Union finance ministers struck a compromise earlier this month to provide funds to help it in the initial phase by granting so-called bridge financing and seeming to clear a hurdle for the SRF to go live on schedule.

($1 = 0.9452 euros)

(Additional reporting by Francesco Guarascio in Brussels; Editing by Jason Neely and Adrian Croft)