ECB's Lagarde praises bank mergers as UniCredit courts Commerzbank

FRANKFURT, Sept 30 (Reuters) - Mergers between European banks are "desirable" if they help them compete with their U.S. and Chinese rivals, European Central Bank President Christine Lagarde said on Monday, as Italy's UniCredit pressed for a tie-up with Germany's Commerzbank.

UniCredit, Italy's number two bank, entered talks with Commerzbank last week after snapping up a stake in its German rival, drawing criticism from both the bank and Germany's political establishment, who want to keep the lender independent.

Responding to a question about a possible merger between these two banks, Lagarde said that scaling up was in Europe's best interest and it should be private sector players deciding whether to go ahead with deals.

"Cross borders mergers -- banks that can actually compete at a scale, at a depth and at range with other institutions around he world, including the American banks and the Chinese banks -- are in my opinion desirable," Lagarde told a hearing at the European Parliament.

The ECB, as the euro zone's top banking supervisor, has the final say on any merger, but Lagarde stressed her comments should not be taken as a direct intervention in any particular deal.

Sources earlier said that ECB policymakers are in support of the deal in principle and viewed Berlin's opposition as running against the principle of European integration.

Meanwhile, the UniCredit-Commerzbank saga was becoming politically sensitive in Italy too, with Rome expecting to have a say on where any merged entity would keep its headquarters, according to sources.

Speaking to the European Parliament's Committee on Economic and Monetary Affairs in Brussels, Lagarde said that mergers come with some risks but it should be up to the private sector to decide whether a deal makes sense.

"Cross-border mergers, if they produce larger institutions that are more agile, that have more scale, that have more depth, have lots of benefits," Lagarde said.

"It's not without liability, without potential risks, but of course it is for the undertakers of those initiatives in the private sector to measure all that and to determine whether it does make sense or not," she said.

The ECB's supervision arm will have to sign off on UniCredit's plans to raise its Commerzbank stake and the rate-setting Governing Council, chaired by Lagarde, will have the last word. (Reporting by Balazs Koranyi and Francesco Canepa; Editing by Toby Chopra and Hugh Lawson)