TOULOUSE, France (Reuters) - Central banks must be wary of offering liquidity on such easy terms that it deters some euro zone banks from necessary restructuring, ECB Executive Board member Benoit Coeure said on Thursday.

With excess liquidity in the banking system declining, many economists expect the European Central Bank to launch a new round of long-term cheap loans to encourage banks to lend to the wider economy.

"The resort to central bank liquidity should be expensive, bounded in time, and (address) only emergency situations," he said in prepared remarks for delivery at a conference in Toulouse, southern France.

"This matters particularly in the euro area, where over-reliance on central bank funding, including emergency liquidity assistance, can delay the necessary restructuring and changes in banks' business models," he added.

ECB President Mario Draghi said on Thursday that the central bank stood ready to temper money markets if needed, possibly with a new long-term liquidity operation for banks.

However, fellow ECB policymaker, Bank of France governor Christian Noyer, said in a Le Monde interview that liquidity was still abundant and therefore such an operation was not currently needed.

Coeure said that central banks should provide liquidity only in a crisis and not when banks had insufficient capital, a problem which he said only shareholders and possibly governments could address.

"Liquidity ought to be provided to the banking system as needed, but it should not be a substitute for a lack of capital," he added.

(Reporting by Leigh Thomas, editing by Tom Heneghan/Ruth Pitchford)

 

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