Germany: better to wind down unprofitable banks than prop them up

BERLIN (Reuters) - It is better to wind down unprofitable banks than keep them afloat artificially and state aid should be used as little as possible in bankruptcy cases, Germany said on Monday after Italy started winding down two failed regional banks.

A spokeswoman for the German finance ministry declined to comment on individual cases but set out the general view from Berlin.

"If banks are unprofitable, it is better to let them exit the market than keep them artificially alive with precautionary recapitalisation. The use of state aid should be avoided as much as possible in bankruptcy cases," she said.

It was up to the European Commission, which approved the Italian deal, to keep state aid to a minimum, she said, adding compensation for small private investors could, in exceptional cases, be compatible with European rules.

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(Reporting by Madeline Chambers and Paul Carrel)