Public backstop for banks in euro zone necessary - ECB's Praet

FRANKFURT (Reuters) - A euro zone-wide public backstop for banks is necessary and bailouts should not be ruled out even when investors are forced to pay for some losses, European Central Bank Executive Board Member Peter Praet said on Tuesday.

Imposing losses on creditors and shareholders was trumpeted as the centrepiece of Europe's response to the financial crisis but some are questioning whether the new rules will be fully applied after the Italian government's rescue of the troubled Monte dei Paschi di Siena (BMPS.MI.)

"A certain level of public risk sharing is necessary to create confidence in the overall financial system and thereby unlock the potential of private risk-sharing," Praet, the ECB's chief economist, said in a speech in Rome. "Even well-capitalised banks can fall victim to runs and contagion."

He added: "Looking ahead, it will be essential to establish a common fiscal backstop to ensure that the Single Resolution Fund has sufficient resources to support any necessary resolution measures."

(Reporting by Balazs Koranyi; Editing by Francesco Canepa)